Congress can tinker all it wants with financial regulation and the tax code, but only by reducing the federal deficit can it bring down mortgage and other interest rates, according to the chairman of the Senate Banking Committee.

An obviously frustrated Sen. Jake Garn (R-Utah) blasted Congress for its "absolute and utter failure" to act in a "meaningful" way. "We simply failed to do our job," he said.

As a result, proposals to allow trusts for investment in mortgages (TIMS) and other devices to attract more capital into the mortgage market or to make that market more efficient amount to no more than nibbling at the edges of the housing industry's problems, he said.

"We can't solve your problems" with these measures, he told the annual meeting of the Mortgage Bankers Association of America here this week. "We can treat the side effects, but that will not solve the problem of carrying this massive debt.

"When we start looking at the problem of the thrift industry, the mortgage bankers . . . there are no legislative solutions that will solve the basic problem," he said.

Two other senators expressed optimism that Congress will in fact deal with the deficit next spring.

"There is a consensus developing that something has to be done, . . . " said Christopher Dodd (D-Conn.).

"We must deal with it," added Pete Wilson (R-Calif.), "because, if we do, interest rates will decline further. If we don't, interest rates will skyrocket," leading to a recession.

Dodd noted that so far there has been "no political bite" to the issue. "Eyes glaze over" when he talks about it with constituents, he said. Nonetheless, it "is an issue Congress is taking seriously," Dodd asserted.

Dodd and Wilson indicated they believe that the pressures of trying to reduce the deficit will lead Congress to a fundamental reexamination of the tax system.

Wilson sees "considerable impetus" for such a shift, and said he favors some move for taxing consumption rather than saving, a direction he said most of the industrialized world already has taken.

Dodd called for a "pay-as-you-go" approach in which advocates of new spending would be required to provide plans for raising the necessary revenue. Such a requirement would reduce the calls for new spending, he said.

However, Garn, who spoke at a separate forum, indicated that he has doubts about the sincerity of some of his congressional colleagues' commitment to budget balances.

"We're all fiscal conservatives" now, he said, but he urged the mortgage bankers to examine the voting records of their representatives and senators. "Find out if they vote like they talk. And if they don't, get a new one," he said.

Garn, whose banking deregulation bill passed the Senate but died when the House failed to act, also hit what he called Congress' unwillingness to "deal with the real world."

"There wouldn't be 20 votes in the Senate today for interstate banking," he said. "But it's already here."

He said the marketplace has run away from the existing legislative structure, and the law must be changed to catch up.

"We haven't gone far enough fast enough" on financial deregulation, he said.

On another subject, Garn indicated he believes that the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., which the Reagan administration has talked in the past of privatizing, should retain their ties to the government.

"There is no doubt in my mind that Fannie Mae and Freddie Mac have achieved the purposes Congress set out for them," he said, indicating that the problem now is how to keep them while allowing the private secondary mortgage market to develop.

"I don't want in any way to hurt Fannie Mae and Freddie Mac. We need them and we need them badly," he said.