The two big, government-owned companies that control the American mortgage market must be privatized at exactly the right speed, U.S. Treasury Secretary Timothy F. Geithner told Congress this week. If Congress moves too fast, it could destabilize an already unstable housing market.
But moving too slowly could leave taxpayers on the hook for another expensive bailout. The Treasury already has spent $154 billion to rescue Freddie Mae and Fannie Mac from bankruptcy.
“Failing to act would exacerbate market uncertainty and risk leaving many of the flaws in the market that brought us to this point in the first place,” Geithner told the House Financial Services Committee.
Selling off the millions of mortgages that Fannie and Freddie own and privatizing their mortgage insurance businesses will take years to do properly, Geithner said. But doing so should be only one part of a broader effort to rein in an industry that caused the greatest financial meltdown since the Great Depression.
“For decades, the government supported incentives for housing that distorted the market, created significant moral hazard, and ultimately left taxpayers responsible for much of the risk incurred by a poorly supervised housing finance market,” Geithner said. “These were avoidable mistakes.”
The Republican-led committee was not ready go that far. But in his opening remarks, Rep. Spencer Bachus (R-Ala), who chairs the committee, focused on areas where Republicans and the Obama administration agree.
“It is very encouraging to me that there is now a bipartisan recognition that we must move toward a private market rather than one where the government backstops 90 percent of all mortgages,” Bachus said in during the hearing.
Image: “Over the Crisis” Ludovic Bertron, via Flickr.com