The Obama administration held a conference Tuesday on the state of the U.S. housing finance system, as one of the opening steps in formulating a new national housing policy.

"It's safe to say there's no clear consensus yet on how best to design a new system," Treasury Secretary Tim Geithner said in his opening remarks. "But this Administration will side with those who want fundamental change. It is not tenable to leave in place the system we have today."

That system, mainly through two government sponsored entities, giant mortgage brokers Fannie Mae and Freddie Mac, contributed to the financial crisis of 2007, which precipitated the Great Recession, out of which we are only now - if you believe government analysts - slowly emerging.

While blaming "broader failures" for the brunt of the economic Waterloo, Geithner admitted that Fannie and Freddie "lowered their underwriting standards, providing guarantees for increasingly risky types of mortgages without charging nearly enough to cover the risk."

Geithner said the "failures in our housing finance system were avoidable. And it is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again."

The Treasury Secretary noted that there are some people who want to get rid of Fannie Mae and Freddie Mac entirely and take the federal government out of the housing business altogether. He himself does not agree.

While insisting that the system must end in which government-sponsored lenders take huge risks on insecure loans and rely on the public purse to cover their folly, Geithner also said that some reasonable guarantee or insurance against loss should be part of a successful system.

"This crisis -- where we saw a full retreat by private financial institutions from many forms of mortgage and consumer lending - provides a compelling illustration of why private markets, left to their own devices, find it hard to resolve financial crises," Geithner said.

The government, he said, will have a role in the future system, and he challenged conference attendees to start to define what that role should be.

Rep. Barney Frank, D-MA, and chairman of the House Finance Committee, made headlines today by calling for the termination of Fannie Mae and Freddie Mac. But Frank also said that another agency must be devised to take the place of the two firms.

"If we want to subsidize housing then we could do it upfront and let the budget be clear about that," Frank said.

Linda Couch, senior vice president for policy at the National Low Income Housing Coalition, said the federal government needs to play a significant role in the new system, since market forces alone will not provide for families who cannot afford housing at market rates.

"Just about everyone acknowledges that the private sector is not equipped to address the housing needs of people of lower income," Couch said. "These people need their government to play a role."

The NLIHC pointed out that, in the United States today, there are 9.2 million extremely low income renter households - that is, with incomes below 30 percent of their area median -- and only 6.1 million rental homes they can afford.  The average extremely low income renter household spends 83 percent of its income on housing, the nonprofit said.

"We think Congress can and should structure the way housing is financed in our country to finally make good on the housing goal that Congress established in 1949: 'A decent home and a suitable living environment for every American family,'" said NLIHC Executive Director Sheila Crowley.

A number of conference panelists - as well as Frank and Couch, who were not there - warned that the government in considering a new system should not forget renter families.

 "Fannie Mae and Freddie Mac support is critical for the rental market," said Ellen Seidman, executive vice-president for mission and strategy at Chicago's ShoreBank Corp.

Michael Stegman, director of policy and housing at the John D. and Catherine T. MacArthur Foundation, said "you can't rebalance the mortgage markets without addressing the government's disproportionate support of ownership vs. renting," which also contributed to the inflation in housing prices.

"We created a system where it was cheaper for a person to become a homeowner, at great risk, than to rent," Couch said. "That needs to change. There are people eager and desperate to be well-housed and there is a shortage of available rentals."

Shaun Donovan, Secretary of Housing and Urban Development, said that a discussion about the housing finance system has to be a discussion about more than finance.

"When you choose a home, you don't just choose a home," Donovan said. "You choose a community - schools for your children, public safety, and access to jobs. Today's discussion is critical to ensure that we have a balanced national housing policy in which Americans have real choices about where they want to live:"

Couch explained that the financial reform bill that became law earlier this year called for the administration to address its faulty housing finance system and, thus, its housing policy, and come up with a new and improved system by next year.

"That is why the administration held this conference and why it will hold additional conferences in the coming months," she said.

Frank's Finance Committee will also hold hearings on a new housing policy this fall.

"By early next year we should be seeing an outline of where the administration wants to go with this," Couch said.

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