Geithner calls for overhaul of federal housing policy

The Obama administration called for "fundamental change" at Fannie Mae and Freddie Mac, but a long, politically explosive debate lies ahead on the future of the bailed-out mortgage giants and housing policy that affects millions of Americans and billions in investment.

U.S. Treasury Secretary Timothy Geithner Tuesday raised basic questions about the government's long-standing role in subsidizing the $10.7-trillion housing market and supporting the historic "American dream" of home ownership.

Critically for both home buyers and investors, he backed some form of government guarantee for mortgages. Geithner said a key question was whether the private sector could provide insurance or guarantees as part of a new home financing regime with enough safeguards to avoid another mortgage meltdown.

"It is not tenable to leave in place the system we have today," Geithner said.

"The challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured, to minimize taxpayer exposure," he told housing industry leaders at a conference convened by the Treasury almost two years after the government seized Fannie Mae and Freddie Mac to save them from collapse.

Since then, the two firms -- once lobbying heavyweights able to crush attempts at reform on Capitol Hill - have received nearly $150 billion in taxpayer bailout money and have been placed in conservatorship, sharply restricting their past activities.

"We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support," Geithner said.

"We will not support a return to the system where private gains are subsidized by taxpayer losses." The conference, including some of the mortgage sector's top lenders and investors, was billed as a "listening session" to help the administration develop an overhaul plan by January.

Fannie and Freddie and the Federal Housing Administration now back 90 percent of new U.S. home mortgages, he added.