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Geithner Adviser Says Options for GSE Reform Need Further Study

All options for overhauling the U.S. system of housing finance pose challenges and need further study, an adviser to Treasury Secretary Timothy F. Geithner said today.

The Treasury Department has been working on a plan to restructure housing finance and wind down Fannie Mae and Freddie Mac, the two taxpayer-owned mortgage finance companies, since releasing a white paper in 2011.

The options in the Obama administration’s report ranged from limited federal involvement to a system in which the government would serve as a catastrophic insurer on certain mortgages behind private investors.

“No matter how thoughtful any plan, the deeper you dig beneath its top-line description, try to understand all of its inter-related parts and ask second- and third-level questions, one quickly realizes the challenges and complexities,” Michael Stegman, counselor to Geithner on housing issues, said in a speech in Washington.

Any proposal from the administration will include government support for low-income homeowners and rental housing, Stegman said.

Government support for housing finance should be “transparent, explicit and limited,” Stegman said. “Private capital should be the primary source of mortgage funding and bear the burden of credit losses.”

Stegman didn’t specify when Treasury would release a housing finance plan. Previously, he and Geithner have said a plan could come this spring.

Fannie Mae and Freddie Mac have been operating under U.S. conservatorship since investments in risky loans pushed them to the brink of insolvency in 2008. The two companies have relied on almost $190 billion in taxpayer aid to stay afloat.

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