WASHINGTON (AP)
Alan Zibel, AP Real Estate Writer
Talk of shrinking the government's involvement in the mortgage market is growing. Just don't expect action any time soon.
A conference Tuesday at the Treasury Department is the first of many steps toward restructuring the nearly $11 trillion mortgage market. So far, rescuing mortgage giants Fannie Mae and Freddie Mac has cost the government more than $148 billion. That number is expected to grow.
Treasury Secretary Timothy Geithner will address the conference but is not expected to offer an exit strategy TuesdayThe administration has said it won't offer its plan until next year.
Executives and mortgage experts are prepared to tell the Obama administration that the government must stay in the business of backing U.S. mortgages even if Fannie and Freddie disappear someday.
"At the end of the day, the government will still have a very large role to play," said Mark Zandi, chief economist at Moody's Analytics and a panelist at the event. Others include mortgage executives from Bank of America Corp. and Wells Fargo & Co, plus Bill Gross, managing director of bond giant Pimco and Lewis Ranieri, one of the creators of mortgage bonds.
The Obama administration's management of Fannie and Freddie has been under fire for months from Republicans on Capitol Hill. In December, the Treasury Department eliminated a $400 billion cap on how much money it would give the mortgage giants to keep them from failing. Sen. John McCain, R.-Ariz., has called that a "taxpayer-backed slush fund" and called for the support to be wound down.
Many in the mortgage industry say that's not realistic.
"There has to be a game plan," said Paul Leonard, vice president of government affairs at the Housing Policy Council, a mortgage industry group. "You can't just pull the plug on them."
Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans -- even after the housing market collapsed.
The two mortgage giants, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance.
At some point the government will have to scale back the level of support it provided the housing and mortgage markets during the recession and financial crisis.
Most of the plans being circulated to reshape the mortgage market call for the government to guarantee that investors who buy mortgage-backed securities receive their money even if borrowers default.
Under this system, Fannie and Freddie could either be returned to private ownership or phased out completely. Fannie and Freddie, or their replacements, would pay the government to insure the loans. That money could be tapped if the housing market collapses.
"A government guarantee is both a desirable and necessary component of the country's housing finance system," wrote John Gibbons, a Wells Fargo & Co. executive vice president, in a letter last month to the Treasury Department.
Proposals like that aim to solve the main problem with Fannie and Freddie. The system in place allowed them to profit tremendously during good times but burdened taxpayers with loses when the housing market went bust.
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