Geithner: Change needed in mortgage market

WASHINGTON, Aug. 17 (UPI) -- U.S. Treasury Secretary Tim Geithner Tuesday proposed "fundamental change" for the financing system for the $12 trillion mortgage market.

Geithner opened a housing forum in Washington saying the government likely would continue to play a role in guaranteeing home mortgages, but that reforms should create a system to prevent another collapse of mortgage giants Fannie Mae and Freddie Mac, which were taken over by the Treasury in September 2008.

"It is not tenable to leave in place the system we have today," Geithner said. "We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support. We will not support a return to the system where private gains are subsidized by taxpayer losses."

The government has invested nearly $150 billion in the Federal National Mortgage Association, known as Fannie Mae, and Freddie Mac, the Federal Home Loan Mortgage Corp., in the last two years. The Obama administration plans to announce its detailed proposal for Fannie Mae and Freddie Mac in January, the Wall Street Journal said.

"The risk is that future recessions could be more severe because the financial system would not have the capital to support mortgage lending on an adequate scale," Geithner told the summit of about 200 policymakers, bankers, investors and mortgage industry experts. The challenge, he said, "is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure."