Home cooking

18 August 2010 By James Pethokoukis

Bond guru Bill Gross warned on Tuesday that without government guarantees, only mortgage bonds backed by supersafe loans would interest him. He frets too much. It may be Fannie and Freddie’s funeral, but housing support from D.C. will live on. The key question is how much.

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The U.S. government's role in housing finance should undergo "fundamental change," but it should still provide some guarantees in the mortgage market, Treasury Secretary Timothy Geithner said on Aug. 17.

Fannie Mae and Freddie Mac have received $150 billion in taxpayer bailout money since being taken over by the Bush administration in 2008. Together, the two companies and the Federal Housing Administration now back 90 percent of new U.S. home mortgages.

"We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support," Geithner said. "We will not support a return to the system where private gains are subsidized by taxpayer losses."

Financial reform "is about more than designing an elegant funeral for Fannie and Freddie," Geithner said. "It requires a broader reassessment of how much support the government should provide for housing finance."

But he backed some government guarantee for mortgages and U.S. support for housing more broadly.

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