Post-reform, the U.S. housing finance system will still require a ‘carefully designed’ government guarantee, U.S. Treasury Secretary Tim Geithner said in his opening remarks Tuesday as part of the Obama administration's housing policy summit in Washington, D.C. The conference brought together academics, industry stakeholders and government officials to debate, among other topics, affordable housing, the role of securitization and the divide between federal government and private-sector involvement.
Panelists who spoke Tuesday included the heads of Wells Fargo's and Bank of America's home loan divisions; Bill Gross, co-founder of PIMCO, the world's biggest bond fund; and Lewis Ranieri, chairman of Ranieri and Co. Inc. and co-creator of the mortgage-backed security.
Gross raised eyebrows with his call for a full nationalization of the housing market, later telling reporters that he did not believe the Obama administration would take up the suggestion.
‘Without government guarantees, mortgage rates would be hundreds – hundreds – of basis points higher, resulting in a moribund housing market for years,’ Gross said.
Last year, the Mortgage Bankers Association (MBA) laid out its proposal for the government to maintain an explicit guarantee that would target a narrow class of securities. MBA Chairman-Elect Michael D. Berman told reporters Tuesday that the idea has gained ‘a lot of traction.’
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said the federal government needs to shrink its footprint in the housing market. The Federal Housing Administration, Fannie Mae and Freddie Mac currently guarantee about nine out of every 10 loans.
The challenge in crafting a suitable government guarantee, Geithner said, is to make sure the guarantee is priced to cover the risk of losses and structured to minimize taxpayer exposure.