Geithner warns of risks in mortgage finance system
U.S. Treasury Secretary Timothy Geithner attends the first session of the G-20 Financial Ministers and Central Governors meeting in Gyeongju, South Korea.
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BOB MOON: Treasury Secretary Timothy Geithner told Congress yesterday that the U.S. needs to overhaul the mortgage finance system -- and decide soon what to do about mortgage giants Fannie Mae and Freddie Mac. They've been lumbering along since they were taken over by the government at the height of the financial crisis.
Marketplace's Nancy Marshall Genzer joins us now, live, from Washington. Good morning, Nancy.
NANCY MARSHALL GENZER: Good morning Bob.
MOON: So we've heard the Obama administration say it wants to get out of the mortgage business. Did we learn anything new?
GENZER: Well, we got a timeline. Geithner told the House Financial Services Committee he wants Congress to approve a plan for overhauling Fannie and Freddie in the next two years. Bob, you may remember, last month the Obama administration outlined some different scenarios. One would get Fannie and Freddie out of the mortgage business all together. Right now, they guarantee or own about half of all U.S. mortgages. The second option would have the government back private mortgages, only during an economic crisis.
MOON: Now Congress would have to approve the deal, obviously. So, what was the political reaction to all of this?
GENZER: Some Republicans were quite positive. They like the idea of shrinking the government's role in the mortgage business. A lot of conservatives like the first option, where the only government agency guaranteeing home loans would be the Federal Housing Administration. But the Obama administration is getting some push back from Democrats. Some Democrats argue that, without government guarantees, it'll be very expensive for people in high-priced housing markets -- like Los Angeles -- to get loans.
MOON: OK, so we've gone through the options for Fannie and Freddie. How would that affect me, though if I go out and try to buy a house?
GENZER: Well, Bob, you'd have to dig into your wallet a bit more. Your down payment could be significantly higher. The thinking is, without Fannie and Freddie backing them, banks could require a 20 percent down payment. And you'd have to go through stricter checks on your credit history.
MOON: Hurry up, huh? Nancy Marshall-Genzer, thanks.
GENZER: You're welcome.