WASHINGTON — The Obama administration's plan to gradually dissolve ailing housing giants Fannie Mae and Freddie Mac and to shrink the government's role in the mortgage market drew praise from House Republicans on Tuesday. The GOP chairman of the House Financial Services Committee called the proposal a good starting point for bipartisan negotiations over a housing overhaul.
The positive reaction came as Treasury Secretary Timothy Geithner told the committee that the Obama administration wants Congress to approve legislation within two years that would slowly dismantle Fannie and Freddie. Failing to do so would worry the financial markets by leaving serious problems unresolved, he said.
"Our hope is Congress will work with us to find a consensus for a long-term solution," Geithner told the lawmakers.
"You don't want to run a system where the taxpayer is on the hook when things go bad," Geithner said.
Fannie and Freddie guarantee or own about half of all U.S. mortgages. Along with other federal agencies, they played a role in nearly nine of 10 new mortgages over the past year, as private lenders have remained nervous about making loans. The two companies nearly collapsed in 2008 as the housing market crumbled, but have been kept alive with $150 billion — so far — in taxpayer dollars.
The administration thinks the ultimate cost of that bailout will be $70 billion to $75 billion or less, Geithner said.
In a written statement aides distributed at the hearing, committee Chairman Spencer Bachus, R-Ala., said Republicans are ready to sit down with administration officials "as soon as possible to craft legislation to produce a comprehensive housing finance reform plan."
As part of its plan for slowly eliminating Fannie and Freddie, the administration wants to lower the size of mortgages they can buy and raise the fees it charges — proposals designed to help private lenders move back into the mortgage market. "The cost of a mortgage is going to be higher in the future," Geithner said.
The administration's report offered three options for overhauling Fannie and Freddie. One would limit the government to helping poor and middle-class borrowers through agencies like the FHA. The second would have the government back private mortgages, but mostly during times of economic crisis. The third would give it the broader role of reinsuring some mortgage investments that are already guaranteed by private insurers.