(CNSNews.com) – Treasury Secretary Timothy Geithner, speaking at the Brookings Institution on Wednesday, said efforts to end the government’s authority in the housing market “would be very damaging.”
Geithner was responding to a question about mortgage writedowns. An audience member asked: “I had a question about mortgage writedowns – if the administration is considering any additional programs and if you believe they will have a significant effect on the broader economy,” an audience member asked.
The housing market has “long way to go to work through the big overhang you’re seeing,” Geithner said. And helping those “who have income and can afford to stay in their home, to stay in their home” is one of the “most promising ways to help facilitate that process.”
“Again, a modification in mortgage allows them to do that, to help more Americans refinance and take advantage of historically low mortgage rates – even if they’re deeply underwater – and to move this very large stock of unoccupied homes – the legacy of the crisis – to move that into the rental market where there’s a lot of demand, of course a lot of shortages,” Geithner said.
Reducing the principle on home loans should also be an option, the Treasury secretary said.
“We’ve done that in the programs we run at the Treasury. You’re seeing quite a lot of that in markets, as banks and investors make the same judgments themselves that it’s in their interest over time to do that,” he said.
“And we’re working as you … must know with Fannie and Freddie and their oversight bodies to make the economic and financial case to them that this will be a useful part of what they’re trying to do, and it would … almost certainly improve overall returns to the taxpayer in those companies,” Geithner said.
Edward DeMarco, acting director of the Federal Housing Finance Agency, which controls Fannie Mae and Freddie Mac, recently expressed concern about whether forgiving debt for some homeowners who are underwater on their mortgages might lead others to stop paying their mortgages so they could get the same deal.
"The far larger group of underwater borrowers, who today have remained faithful to paying their mortgage obligations, are the much greater contingent risk to housing markets and to taxpayers," National Public Radio quoted DeMarco as saying.
“I should say that there’s a bill being considered in the House today that would end the government’s authority in the housing market, which would be very damaging,” Geithner said.
“I mean to right now at this time with the economy where it is, with unemployment where it is, with housing where it is, with the scars and the damage and the legacy of the crisis still so damaging and so apparent to many Americans. To stop the government from having the ability to help ease the transition this has caused, it would be very damaging to recovery, and there’s no plausible explanation and financial case for doing it,” Geithner said.