Treasury secretary Timothy Geithner early next year plans to present a proposal for "fundamental reform" of Fannie Mae and Freddie Mac along with other facets of the housing finance system. 

He told a TARP Congressional oversight panel that Treasury officials are examining options for restructuring the GSEs which have been in conservatorship for almost 20 months and could wind up costing taxpayers $400 billion.

Together, the two account for about 70% of all originations in the nation. FHA accounts for most of the balance with portfolio lending (mostly jumbo) making up a sliver of all originations. The secretary said the agency will not stop with its study of Fannie and Freddie.

"The range of things that contributed to this mess went well beyond the basic incentive problems and moral hazard problems that prevailed at the GSEs," he said.

He told the Troubled Asset Relief Program panel that today Fannie and Freddie are being managed more conservatively. "At our insistence, they have put in place much more conservative underwriting standards. They are charging more for their guarantees to remedy some of the mistakes they made earlier," he said.

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