Geithner: Housing system needs government support

Treasury Secretary Timothy Geithner said without government backing for the housing finance system, future economic downturns could be harsher, when discussing the future of Fannie Mae and Freddie Mac.
The two mortgage giants were essentially nationalized at the peak of the crisis in 2008 to avoid losses and stem the credit contagion. So far, they've cost taxpayers roughly $145 billion in funds, used to cover their losses, with more losses expected on the horizon.
Geithner added that different countries provide that support in a variety of ways, employing explicit and implicit approaches, but that the question that should be asked is "how much" government support should be provided.
Geithner has said in the past that he's seeking a middle ground — one in which the government would continue to offer some type of federal guarantee of mortgage loans to ensure that U.S. borrowers can easily finance the purchases of homes — but has yet to provide specific details.
Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., said that without government guarantees, mortgages would be hundreds of basis points higher, resulting in a moribund housing market for years. He added that PIMCO would not buy a privately insured mortgage pool unless it was made up of mortgages that each had at least a 30% down-payment.
He also warned that without a "positive fiscal stimulus" unemployment rates would continue to rise and approach double digits. Gross recommended a major home refinancing program where homeowners with mortgages that have 5%, 6% or 7% down are reduced to the current 4% rates.
"This home refinancing, to my way of thinking, where you take 5%, 6% or 7% mortgages and turn then into 4% mortgage would provide a push, a stimulus of $50 billion to $60 billion in consumption as well as potential lift of 5% or 10% in home prices," he said.