Fed's Bullard: use private sector for mortgages

ST. LOUIS (Reuters) - The private sector should replace government programs in supplying most mortgages as the United States moves to reform a housing finance system that cratered during the recent crisis, a top Federal Reserve official said on Wednesday.

"To the extent possible, we need to let the private sector provide the bulk of U.S. housing finance ... without the incentive-distorting set of government programs and taxpayer guarantees that caused our current system to collapse," St. Louis Federal Reserve Bank President James Bullard told a conference.

Pre-crisis, U.S. housing finance depended in large part on government-sponsored mortgage finance enterprises Fannie Mae (FNMA.OB), Freddie Mac (FMCC.OB) and the Federal Home Loan Banks. The government took over control of Fannie Mae and Freddie Mac at the height of the crisis.

Congress did not decide what to do about the future of the two companies or the mortgage finance system in financial regulatory reforms enacted this year. The debate over the future roles of the companies, and of the government, in housing continues.

Fannie Mae and Freddie Mac were chartered by Congress to support homeownership but were publicly traded, for-profit companies. Their congressional charters led investors around the world to assume their debt was backed by the U.S. government, giving them a powerful funding advantage that many believe distorted housing markets.

Bullard called for disentangling government support for lower income home buyers from mortgage finance more broadly.

"It makes little sense to try to design programs that subsidize everyone," he said.

(Reporting by Mark Felsenthal; Editing by James Dalgleish)