Bank executives urge government to back mortgages

Treasury Secretary Timothy Geithner, second from left, hosts a Conference on the Future of Housing Finance, Tuesday, Aug. 17, 2010, at the Treasury Department in Washington. From left are, National Urban League President and CEO Marc Morial, Geithner, Ingrid Gould Ellen of New York University, and Alex Pollock of the American Enterprise Institute. (AP Photo/Pablo Martinez Monsivais)Treasury Secretary Timothy Geithner, second from left, hosts a Conference on the Future of Housing Finance, Tuesday, Aug. 17, 2010, at the Treasury Department in Washington. From left are, National Urban League President and CEO Marc Morial, Geithner, Ingrid Gould Ellen of New York University, and Alex Pollock of the American Enterprise Institute. (AP Photo/Pablo Martinez Monsivais)

WASHINGTON (AP) — The Obama administration invited banking executives Tuesday to offer advice on changing the government’s role in the mortgage market. Their response: stay big.

While the executives disagreed on the exact level of support needed, the group overwhelmingly advocated the government should maintain a large role propping up the nearly $11 trillion market.

Bill Gross, managing director of bond giant Pimco, said the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions homes backed by mortgage giants Fannie Mae and Fannie Mac.

Refinancing those homes at the lowest mortgage rates in decades would give Americans more money each month. That would boost consumer spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent, he said.

Without such stimulus in the next six months, Mr. Gross said, the economy will move at a “snails pace.”

Treasury officials have said they have no plans to enact such a plan, which has been the subject of intense rumors on Wall Street in recent weeks.

Tuesday’s conference at the Treasury Department is the administration’s first of many steps toward restructuring the troubled industry. So far, rescuing Fannie and Freddie has cost the government more than $148 billion. That number is expected to grow.

Treasury Secretary Timothy Geithner pledged “fundamental change” to the structure of Fannie and Freddie. The mortgage giants profited tremendously during good times but burdened taxpayers with losses when the housing market went bust. He said the two companies weren’t the only cause of the financial crisis, but made it worse.

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 companies, 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 MortgageFinance.

Mr. Geithner did not offer a specific exit strategy for Fannie and Freddie. He agreed that the government could remain involved in the mortgage system by guaranteeing investors in mortgage-backed securities get paid, even when borrowers default.

There is a “strong case to be made” for such an arrangement, Mr. Geithner said.

But Mr. Geithner suggested that Fannie and Freddie’s replacements could pay the government to insure the loans. That money could be tapped if the housing market collapses and would ensure taxpayers do not get hit with losses in the future.

“It is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again,” Mr. Geithner said.

Republicans are expected to pick up seats in Congress in November and the Obama administration will need support from both parties to enact changes next year.

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