Geithner: GSE Reform Top Priority, But Unlikely to Pass This Year

WASHINGTON — Treasury Secretary Tim Geithner pledged to provide more details on a plan to reform the housing finance market this spring, but said legislation is unlikely to advance this year.

Speaking at a press conference on the state of financial reform, Geithner said the administration planned to lay out new details on specific approaches to reform, including winding down the government-sponsored enterprises, and would begin working "more intensively" with Congress on options for legislation. But he said crafting legislation will be a complicated process, despite general support for the broad reform strategy the administration outlined in a white paper last February.

"That's promising, but realistically we don't expect to legislate this year and we think that's going to take a bit more time," he said. "The broad arc of the initial response so far is somewhat encouraging."

Moving ahead with plans to reform the housing market is a top priority for 2012 — "a critical year for financial reform" — along with efforts to expand the availability of credit and level the regulatory playing field for U.S. financial institutions, Geithner said.

Asked if the administration planned to put forward a specific GSE reform plan, Geithner said Treasury will consult broadly with legislators on a range of options to help lay the foundation for consensus.

"We'll do whatever we think makes sense in advancing the cause of consensus," he said. "We have a lot of views on what we think the right balance is, and of course we're going to share those views with legislators, but they're going to have some views, too."

Geithner provided few details on the administration's approach, but said the plan would include winding down the GSE's, bringing private capital back to the market, reducing the government's direct role in the housing market and better targeting its support to first-time homebuyers and low- and moderate-income borrowers.

He said the new system should also foster affordable rental options close to good schools and employment opportunities; have stronger, clearer consumer protections; and create a level playing field for institutions participating in the housing finance system.

"For this to happen without hurting the broader economic recovery and adding further damage to those parts of the country hardest hit by the crisis, we need to get banks and private investors to come back into the market on a larger scale," he said. "This cannot happen without more clarity on rules that will apply, so we want to move forward using the authority we have and to pull forward the prospects for broader legislation to replace the GSEs and reform the rest of the market."

Republicans have sharply criticized the administration for failing to move quicker on GSE reform, but Geithner defended the pace of reform, saying "the immediate and most pressing obligation continues to be repairing the damage to homeowners and the housing market caused by the financial crisis."

Geithner said the administration would also continue to support efforts to expand the availability of credit to businesses and individuals. Although bank lending is rising and credit terms have eased, he said there are "pockets where credit is tighter than it needs to be."

He touted the administration's efforts to improve access to small business capital through the Small Business Lending Fund, and said the Federal Housing Finance Agency and Federal Housing Administration are poised to announce additional measures to reduce barriers to buying a home or refinancing a mortgage. Both initiatives are key to expanding access to credit, he said.

He also warned regulatory examiners not to go too far in criticizing banks.

"More broadly, it is important that bank supervisors, in the normal conduct of bank exams and supervision, as in the design of new rules to limit risk taking and abuse, are careful not to overdo it with actions that cause undue damage to the availability of credit or liquidity to markets," Geithner said.

His comments may provide ammunition for supporters of a bipartisan bill that would allow banks to appeal their exam ratings, which they say could mitigate the effects of so-called overzealous examiners.

Geithner also called on international regulators to work together to align their rules to close regulatory gaps, and prevent new ones from forming, to ensure a level playing field among U.S. institutions. He said the administration must work to avoid an unlevel global playing field by discouraging other nations from applying softer rules to their institutions, and figuring out a sensible way to apply rules to the foreign operations of U.S. firms and the U.S. operations of foreign firms.

"This is very complicated and another example of where we need a clearly articulated common approach across the U.S. regulatory agencies," he said.