By Mike Colpitts
Treasury Secretary Tim Geithner told attendees at the White House conference called to fix the nation’s mortgage giants, Fannie Mae and Freddie Mac the work to repair the nation’s mortgage business needs to be a bi-partisan effort.
“Fixing this system is one of the most consequential and complicated economic policy problems we face as a country,” said Geithner. “Alongside the broader failures that contributed to this financial crisis, there are several that directly involved the government sponsored entities, Fannie Mae and Freddie Mac.”
The U.S. government has spent $148-billion to bail-out the nation’s mortgage giants by buying toxic mortgage securities with tax payer money, most of which are on foreclosed mortgages.
“The failures that produced the system we have today were bi-partisan,” said Geithner. “The solution must be as well. This is a test for Washington. The stakes are high. For many Americans, their home is their largest financial asset and the housing industry supports millions of jobs.
“It is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again,” said Geithner. The treasury secretary also told attendees of the half day conference at the Treasury Department that it is important that the federal government continues guaranteeing mortgages.
Mortgage industry members, including bankers, consumer groups and housing advocates were in attendance as the Obama administration starts on the long road to repair Fannie Mae and Freddie Mac. Some analysts expect fixing the country’s mortgage giants to take as long as a decade.
Proponents of increasing homeownership urged Fannie and Freddie officials to cut lending guidelines to increase homeownership. The explosion of mortgage lending drove Wall Street traders to develop financial instruments to provide massive loads of money that caused the real estate bubble and resulted in the financial crisis.
The issue is a major political liability for the White House as millions of Americans lose their homes to foreclosure in the wake of the financial crisis, costing tax payers at least an estimated $50,000 for every many, woman and child in the U.S.
“There is nothing we can do to decrease the significant loses Fannie and Freddie incurred ahead of this crisis,” Geithner told conference attendees.“All we can do is to minimize the risk that they get worse.”
“It is important to note that reform, as Barney Frank has said, is about more than designing an elegant funeral for Fannie and Freddie. It requires a broader reassessment of how much support the government should provide for housing finance.”