- Associated Press - Tuesday, March 1, 2011

WASHINGTON (AP) — 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.

“Our hope is Congress will work with us to find a consensus for a long-term solution,” Mr. Geithner told the lawmakers.

The positive words came at a hearing held three weeks after the Obama administration released a report calling for a stark reduction of the federal role in housing. The nation’s housing market has been battered in recent years by low home prices and vast numbers of foreclosures, and politicians from both parties want to find a way to have private lenders — not the government — bear more of the burden.

“You don’t want to run a system where the taxpayer is on the hook when things go bad,” Mr. Geithner said.

Even so, it is not clear whether major legislation such as this could be approved during next year’s presidential election campaign, when partisan divisions intensify.

Fannie and Freddie guarantee or own about half of all U.S. mortgages. Along with other federal agencies, they played a role in nearly 9 of 10 new mortgages over the past year, as private lenders have remained nervous about making new 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.

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,” Mr. Geithner said.

In a written statement aides distributed at the hearing, committee Chairman Spencer Bachus, Alabama Republican, said the administration had included many GOP ideas in its plan.

“House Republicans are ready and willing to sit down with you, Mr. Secretary, and other administration officials, and our Senate colleagues as soon as possible to craft legislation to produce a comprehensive housing finance reform plan,” it said.

Rep. Scott Garrett, New Jersey Republican, another member of the committee, also noted the common ground between Republicans and the administration’s plan, including the phase out of Fannie and Freddie and the move toward a privately financed mortgage system.

“I believe there is an opportunity for us to reach broad based consensus,” Mr. Garrett said.

Democrats, many of whom have worried that the administration plan will make it harder for many families to get mortgages, spent less time praising Mr. Geithner.

The top Democrat on the committee, Rep. Barney Frank, Massachusetts Democrat, criticized Republicans for failing to rally behind a single bill overhauling Fannie and Freddie, noting that the GOP criticized Democrats severely last year when the two companies were ignored by the financial overhaul law they enacted.

Story Continues →