Fannie, Freddie Future Debated at Treasury Housing Summit

Treasury Secretary Timothy Geithner told industry executives and academics there is a "good case" for the government to continue playing a role in housing finance, The Wall Street Journal reported Aug. 18. However, Geithner and other administration officials have been careful not to say what form that might take and how much support is needed.

The Treasury Department’s recent Housing Summit was aimed at soliciting views from top industry officials on how Fannie Mae and Freddie Mac should be restructured. The debate centers on whether the government should continue to promote 30-year, fixed-rate mortgages, which often require some form of government guarantee.

Critics, including those who support privatizing Fannie and Freddie, disagree with Geithner, the Journal reported. "The government was complicit in easy lending standards and lack of regulation in driving up a huge housing bubble," Anthony Sanders, a professor at George Mason University, said at the conference. "Since the government caused quite a bit of the trouble, to say, ‘See, you need us,’ it’s twisted logic."

Fannie and Freddie failed because of a "toxic combination" of a perceived government guarantee and ineffective oversight, Geithner said, adding that rebuilding the broken housing-finance system will be a test for Washington. "The failures that produced the system we have today were bipartisan. The solution must be as well," Geithner said in the Journal’s coverage.

The Obama Administration said it will produce a plan by January 2011 to change the role the two government-controlled firms play in supporting the housing market.