Wednesday, March 16, 2011

Geithner Backs New Financing Approach for Mortgages

Treasury Secretary Timothy F. Geithner yesterday backed legislative efforts to create a new market for financing mortgages that would help wean the $10.6 trillion U.S. mortgage market from government support, Reuters reported yesterday. Geithner testified before the Senate Banking Committee that he endorsed efforts to create a market for covered bonds, which are securities issued by banks and backed by pools of loans. That is different from the current mortgage system, in which lenders sell many of the loans they make to Fannie Mae and Freddie Mac, which then repackage them as securities for investors. The Federal Deposit Insurance Corp. has warned that a covered bond system could put its bank deposit insurance fund at increased risk for losses because the investors would have seniority over the agency in the event of default. Geithner said such concerns were legitimate and would have to be worked out.

In related news, the Obama administration issued two veto warnings yesterday on bills to kill government housing programs that Republicans plan to take up in the House today, CongressDaily reported today. The bills would end the administration's main modification program, the Home Affordable Modification Program, and eliminate $1 billion remaining in the Neighborhood Stabilization Program, a program for rehabilitating foreclosed homes. The bills are expected to pass the House but are unlikely to be taken up in the Senate, where Democrats have largely sought to improve foreclosure-mitigation efforts rather than abandon them.