Geithner to Congress: Revamp Housing in 2 years

The Obama administration wants Congress to approve legislation within two years that gradually dissolves Fannie Mae and Freddie Mac, the nation's huge but financially feeble housing market giants.

In remarks prepared for delivery to the House Financial Services Committee, Geithner says failure to act by then would worsen market jitters and leave serious problems unaddressed. But in an apparent warning to some Republicans who want to quickly pull the government out of its role in supporting the mortgage system, he's also warning that acting too fast would hurt too.

"While we are confident that the steps we have laid out follow the right path, haste would be counterproductive -- possibly destabilizing the housing finance market or even disrupting the broader recovery," Geithner says.

The Treasury chief's testimony comes less than three weeks after the administration released a report proposing the dismantling of Fannie and Freddie and scaling back 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. Geithner also reiterated administration plans to constrict the Federal Housing Administration's role in making loans. Some Democrats and consumer advocacy groups have complained that such actions will make it harder for many families to purchase homes.

The administration's report offered three options for overhauling Fannie and Freddie. One would limit the government to helping poor and middle-class borrowers through agencies like the FHA. The second would have the government back private mortgages, but mostly during times of economic crisis. The third would have the government "reinsure" some mortgage investments that are already guaranteed by private insurers.

The two companies buy mortgages from banks and other primary lenders, package them together and sell them with a guarantee that investors would be repaid in case of default. That system helps keep interest rates lower and provides lenders with fresh cash to make additional loans.

Oil Futures Pull Back from $100-a-Barrel Mark

Oil futures surged 14% in Nymex trading last week, their biggest weekly percentage increase since January 2009; more than two years ago.

The rally came as oil-supply disruptions in Libya, where an uprising against the regime of Col. Moammar Gadhafi triggered violent unrest and spooked traders.

The international pressure for him to step down continues to grow as opposition forces have gained control of several cities in eastern Libya and are battling Gadhafi loyalists elsewhere in the country.

Protests also rattled Oman over the weekend, and according to media reports protesters on Monday closed roads leading to a port as demonstrations continued.

Oman isn't a member of the Organization of the Petroleum Exporting Countries (OPEM). But the sultanate, Saudi Arabia's neighbor to the east, "plays an important role as a benchmark for oil shipments in the Asian region," analysts at Commerzbank said in a note to clients Monday.

"Furthermore, protests are therefore knocking at Saudi Arabia's door. The largest OPEC producer has already upped its oil production to 9 million barrels a day according to industry sources, to compensate for supply outages in Libya," they added.

Meanwhile, prices for Brent crude, the European benchmark, also turned lower. Brent oil was most recently down 40 cents, or 0.4%, to $111.77 a barrel on ICE Futures in London.

In Libya, opponents of Gadhafi took control of a key city near the capital, Tripoli, on Sunday, declaring a provisional government, and also saying they would allow oil shipments to resume from territory under their control, The Wall Street Journal reported on its Web site.

"Although the [Libyan] Sirte Basin infrastructure is relatively self-contained, with fields and ports now 'liberated' from Gadhafi's forces, the likelihood remains of the country's oil remaining virtually offline for the near term, although sporadic cargoes may be exported," analysts at IHS World Markets Energy Perspective said.

"A great deal of uncertainty hovers over any wholesale restart while the political impasse continues," they said.

Workers' Income Climbs 1.0% in January

Personal income jumped a seasonally adjusted 1.0% in the first month of 2011, while consumer spending rose a smaller 0.2%, the Commerce Department reported yesterday.

Excluding the tax cut, personal income rose a much smaller 0.3% in January. And adjusted for inflation, personal consumption fell 0.1% last month, marking the first decline in a year.

"The personal income and spending report for January showed a slow start to the year for consumers," said chief economist Julia Coronado of BNP Paribas.

Late last year, U.S. lawmakers passed a one-year reduction in worker contributions to Social Security, giving them more money in each weekly paycheck. In January, most of the tax cut appeared to end up in savings.

Since income rose more than spending in January, the individual savings rate rose to 5.8% of disposable income — money leftover after paying for food, fuel, housing costs and other necessities. That was up from 5.4% in December.

Inflation, meanwhile, rose slightly, based on the latest reading from the personal consumption expenditure price index. The index increased 0.3% in January — the same as in December — and it's up 1.2% over the past 12 months.

The core PCE, which excludes volatile food and energy costs, rose 0.1%. Over the past year, core inflation has risen 0.8%.

Economists surveyed by MarketWatch had forecast a 0.9% gain in personal income and a 0.4% increase in consumer spending. The core PCE index was expected to rise 0.1%.

The government also revised consumer spending in December to an increase of 0.5%.

Looking ahead, some economists say first-quarter growth could end up lower than expected unless consumer spending rebounds in February and March. The spending increase in January was the lowest since last summer.

For the first quarter, economists surveyed by MarketWatch forecast the U.S. will grow 4.0%.

Consumer spending is the single largest contributor to U.S. growth, accounting for as much as two-thirds of economic activity. Consumer spending rose 4.1% in the fourth quarter, helping to generate a 2.8% increase in gross domestic product.