msnbc.com news services
updated 3/1/2011 11:21:45 AM ET 2011-03-01T16:21:45

Treasury Secretary Timothy Geithner said on Tuesday that future mortgage costs likely will be "modestly higher" after reforms are completed to the national housing finance system.

Testifying before the House Financial Services Committee, Geithner said it will take some years to complete an overhaul of the system and to wind down Fannie Mae and Freddie Mac but said it was important for lawmakers to begin the effort.

Geithner said housing markets were "still in a very difficult state" and cautioned that the administration and lawmakers must be careful not to jeopardize a broader economic recovery while dealing with housing finance reform.

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The Treasury chief's testimony comes less than three weeks after the administration released a report calling for a scaling back of mortgage giant Fannie Mae and Freddie Mac and much of the rest of the federal role in housing, a process the administration has said should occur gradually over several years. Geithner's setting of a time frame for the overhaul legislation underscores President Barack Obama's desire to start the clock on many of those changes.

"Reforming our country's housing finance market is an essential part of our broader efforts to help ensure Americans will never again suffer the consequences of a preventable economic crisis," Geithner says.

It's unclear whether major legislation such as this could be approved during next year's presidential election campaign, when partisan divisions heighten.

Fannie and Freddie guarantee or own about half of all U.S. mortgages. Along with other federal agencies, they played a role in nearly 9 of 10 new mortgages over the past year, as private lenders have remained nervous about making new loans. The two companies nearly collapsed in 2008 as the housing market crumbled, but have been kept alive with $150 billion — so far — in taxpayer dollars.

Congress is trying to decide how to reshape the federal role in the housing market, which remains weak, with low prices and huge numbers of foreclosures in Florida, parts of the Southwest and other regions. While both political parties concede that changes are needed to protect taxpayers and revive private lending, Republicans tend to want to move more strongly while Democrats express more concerns about maintaining the government's role in helping lower-income families.

To wind down Fannie's and Freddie's roles in the market, the administration also wants to take steps for which it does not need congressional action, such as decreasing the size of loans the two companies may buy.

The Associated Press and Reuters contributed to this report.

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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 5.09%
$30K home equity loan FICO 5.21%
$75K home equity loan FICO 4.67%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.34%
13.34%
Cash Back Cards 17.82%
17.82%
Rewards Cards 17.07%
17.07%
Source: Bankrate.com