(Fortune) -- A long-awaited renovation of mortgage companies Fannie Mae and Freddie Mac could start to take shape this year, Treasury Secretary Tim Geithner told Congress Tuesday.
The Obama administration hopes to propose legislation to fix the nation's housing finance system within months, Geithner told the House Financial Services Committee. The government currently finances almost all home mortgages, thanks to its 2008 takeover of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500).
Geithner acknowledged that devising a new system to finance U.S. house purchases would be a "complicated, consequential" process. He emphasized that he hasn't "seen an ideal model" to replace the current arrangement, which is widely viewed as undesirable because of its role in inflating the housing bubble and the conflict between Fannie and Freddie's profit-seeking and public policy missions.
But with the Senate moving ahead on reform of bank regulation, "we're at a point to begin" the process of shaping housing-finance legislation, Geithner said. "I don't see why it should take years."
Republicans in Congress have accused the administration of dragging its feet on reforming the housing finance system. Fannie and Freddie have taken $127 billion in Treasury aid since their collapse in September 2008, and Geithner said Tuesday the government will eventually recognize "substantial losses" from running the companies.
At the same time, Geithner said it would take time to create a plan that keeps mortgage credit widely available, protects consumers and ensures the financial system remains stable.
Fannie and Freddie have emerged as central to the administration's support for the nation's troubled housing markets. The Treasury's funding for the companies and the Federal Reserve's purchases of their debt have kept U.S. mortgage rates at historically low levels, making houses more affordable and offering some support to tattered bank balance sheets.
While some Republican plans would eventually remove the government from the mortgage business altogether, Geithner said he believes there is "a quite strong economic and public policy case" for federal mortgage guarantees of some sort. He cited the need for "a stable housing finance market."
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