G7 cool toward public mortgage funds: U.S. Treasury

By David Lawder

MIAMI (Reuters) - The idea of using public money to buy up distressed mortgages to ease a global credit crunch is receiving a cool reception from Group of Seven industrialized nations, a U.S. Treasury official said on Sunday.

The Financial Stability Forum, comprised of central banks and finance ministries of countries with major exchanges has drafted an options paper that includes a plan to recapitalize banks and repurchase mortgages, with the possible use of taxpayer funds.

The idea -- one of the more drastic options to combat the credit crisis -- is expected to be discussed at the G7 finance chiefs' meeting in Washington on April 11.

The Treasury official said, however, it was not among "mainstream" ideas under consideration on the G7 agenda.

"We have been working closely with the FSF to form the basis of a thoughtful and comprehensive analysis of the recent turmoil and the impact it has had on global markets, but the options paper on which this particular idea is based does not appear to be one of the mainstream documents within the FSF report during the spring meetings," the official told Reuters on condition of anonymity.

"We look forward to continuing discussions about the FSF report during the spring meetings," the official added.

The Treasury official's comments echo those among some European Union sources, who also reacted coolly to the idea. One source said FSF's report on the use of public funds for mortgages was not a "central document."

The Bush administration has opposed using taxpayer funds for direct purchases of mortgages and for wider federal mortgage guarantees, which are among proposals being pushed by Democrats in Congress.