WASHINGTON — Under pressure from Congress, the Obama administration is taking a tentative first step in developing a plan to replace Fannie Mae and Freddie Mac, the huge mortgage-finance companies that the government took over in 2008.
Timothy F. Geithner appeared before the the House Financial Services Committee on Tuesday.
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On April 15, the Treasury Department and the Department of Housing and Urban Development will publish a list of questions seeking comment on the appropriate role of the government in housing policy and housing finance, as well as the design of mortgage products and protections for consumers who use them.
The government has so far spent $126 billion bailing out Fannie and Freddie. Republican criticism over the absence of a plan for the institutions escalated when the White House released a budget in January that said only that the administration “continues to monitor the situation.”
Appearing before the House Financial Services Committee on Tuesday, the Treasury secretary, Timothy F. Geithner, said the Obama administration would take “a fresh, cold, hard look at the core problems in our system” and deliver a “comprehensive reform proposal” to Congress, but declined to specify a timetable.
The lack of specifics frustrated several lawmakers, one of whom, Representative Bill Posey, Republican of Florida, lashed out at Mr. Geithner, saying, “We can’t wait forever to find out.”
Mr. Geithner replied: “You won’t have to wait forever. We’re starting today the necessary progress of figuring out what Congress and the executive branch would like to do to reform the housing finance system.”
Mr. Geithner suggested that the administration was waiting for the economy to stabilize before deciding on a plan. Fannie and Freddie back most of the nation’s home loans and are managing the administration’s $75 billion loan-modification program.
Next week, the Federal Reserve plans to complete a $1.25 trillion program to purchase mortgage-backed securities, a major test of the recovery’s staying power. If mortgage rates were to quickly rise afterward, the Fed might have to step back in.
“I don’t think there is a credible argument that we can abolish, put out of existence, these institutions today,” Mr. Geithner said. “That would not be responsible. One could not defend that.”
Mr. Geithner vowed in his written remarks that whatever form the overhaul takes, Fannie and Freddie will change. “Private gains will no longer be subsidized by public losses, capital and underwriting standards will be appropriate, consumer protection will be strengthened and excessive risk-taking will be restrained,” he said.
Asked whether the government should play a continuing role in guaranteeing mortgages, Mr. Geithner told Representative Jeb Hensarling, Republican of Texas, that it was “the central, existential question.”
He added: “There is a quite strong economic case, a quite strong public policy case, for preserving, designing, some form of guarantee by the government to help facilitate a stable housing finance market. But it can’t be the one we have today.”
In written testimony, Mr. Geithner said that government support for housing finance in other countries “can provide useful insights and examples to consider.” Several countries have entities like Fannie and Freddie that guarantee and hold mortgages, though none on the scale of the United States. Elsewhere, governments underwrite mortgage insurance. Not every wealthy country uses loan securitization to finance housing; some countries in Europe use so-called covered bonds, debt securities that remain on the issuer’s balanced sheet.
Mr. Geithner ruled out permanently nationalizing Fannie and Freddie or creating several entities to compete with them. But he said it was worth considering a public-utility model, in which the entities would guarantee mortgages without maintaining investment portfolios, thereby limiting the systemic risk they would pose. Mr. Geithner’s predecessor, Henry M. Paulson Jr., had endorsed such a model.
Other witnesses proposed a variety of models. Michael D. Berman, chairman of the Mortgage Bankers Association, proposed a model in which the federal government would guarantee mortgage-backed securities, but not the regulated entities that would issue them. Vince Malta, a vice president for the National Association of Realtors, urged the conversion of Fannie and Freddie into government-chartered, self-sufficient enterprises that would not prioritize making profits.
Robert E. Dewitt, testifying for the National Multi Housing Council and the National Apartment Association, which represents the rental housing industry, called for “a balanced housing policy that doesn’t measure success solely by how much homeownership there is.”
Mr. Geithner said that Fannie and Freddie did “remarkably well” in sustaining the secondary mortgage market for much of their history until the late 1990s, when they began to take on excessive risks and allow a severe erosion in underwriting standards.
“Those mistakes caused a huge amount of damage,” Mr. Geithner said. He said it was important to “retain what was good in this system” but added, “I don’t think, though, that it’ll be tenable to recreate” that system.
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