Treasury to propose housing revamp next year

NEW YORK (Reuters) - The U.S. Treasury will not propose an overhaul of U.S. housing finance until next year as it concentrates first on implementing landmark financial reforms, the Treasury's number two official said on Thursday.

U.S.-backed housing finance giants Fannie Mae and Freddie Mac, with their broken business models, are notoriously absent from the U.S. financial rules overhaul close to becoming law.

Inclusion of housing finance reform would bog down the broadest Wall Street reform since the 1930s and delay needed rule changes on consumer protection, systemic risk controls and financial derivatives products, the Treasury says. But early next year, the U.S. will issue a paper outlining proposals and recommendations, Deputy Treasury Secretary Neal Wolin told the Securities Industry and Financial Markets Association (SIFMA) conference in New York.

"We will undertake this work in parallel with the work of implementing the financial reform bill," Wolin said. "It is obvious that the housing finance system cannot continue to operate as it has in the past."

Due to the high stakes in reforming Fannie and Freddie, whose mortgage losses have cost U.S. taxpayers more than $145 billion since late 2008, Wolin said the Treasury is "wide open to ideas, to discussion and to collaboration from all corners."

Both Democrats and Republicans agree a reorganization is essential. But neither party has come up with a workable plan to do that without inflicting more harm on the still-suffering housing market and the broader economy.

Treasury has already begun a "rigorous" implementation planning process for the sweeping financial reform approved by the U.S. Congress.

"That work cannot be done overnight. It will take time. But we are prepared to move on to the next stage with speed, with a strong sense of purpose and with a commitment to ensuring that our financial system is both safe and vibrant," he said.

The U.S. Senate cast sufficient votes to Thursday to give final approval on the legislation.

ALWAYS NEXT YEAR?

Lawmakers for at least a decade have been trying to overhaul Fannie Mae and Freddie Mac, which expanded rapidly under a business model that answered to shareholders yet enjoyed implicit government backing.

"It's always been next year," Randall Guynn, a partner at Davis Polk & Wardwell, said on a SIFMA panel, in regards to again kicking housing finance reforms down the road.

Congress has been concerned that fiddling with the housing finance companies could upset the economic recovery as they and the Federal Housing Administration support the lion's share of all funding for U.S. homebuyers. Investors have yet to return in any significant numbers to the private market for residential home loans.

Housing finance reform could also have overloaded the wider Wall Street regulation bill. It has been a sensitive topic for groups like SIFMA whose Wall Street members face cuts to profitability should they be forced to tie up capital or reduce trading. Tim Ryan, SIFMA's president, applauded parts of the legislation but warned members of a "complicated multiyear process" where more than a dozen regulators will implement over 250 rulemakings.

Among concerns of some financial firms is a situation where the U.S. rules are far more onerous than elsewhere in the world, putting American businesses at a disadvantage. Wolin said "there is a very substantial overlap" in views between U.S. regulators and their global counterparts on the core issues such as capital and derivatives.

This means there will be little space for an investment bank or other firm to gain an advantage by incorporating in places where reforms may be more business-friendly, he said.

"I don't see any reason to think that that will happen," he said in response to a question about U.S. businesses leaving because of new regulations.

(Editing by Andrew Hay)