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* Housing regulator cautiously optimistic recovery underway
* Question of government's role in housing needs resolution
WASHINGTON, Nov 28 (Reuters) - The chief U.S. housing regulator on Wednesday expressed optimism that the deep downturn in the nation's property market was finally over, but said the future of the government's role in housing finance needed to be settled for long-term health.
"I am cautiously optimistic that the signs of stability - and in some areas, strength - that have started to emerge in certain sectors of the housing market are signals that it is beginning to recover," Edward DeMarco, acting director of the Federal Housing Finance Agency, told the Exchequer Club.
U.S. homes prices have risen for eight straight months, a report showed earlier this week, and sales activity has also picked up, although data on Wednesday showed sales of new homes have languished.
FHFA oversees Fannie Mae and Freddie Mac , the nation's two dominant mortgage finance firms, which were placed in a government conservatorship in 2008 as mortgage losses threatened their solvency.
They have received almost $190 billion in taxpayer funds and have returned about $50 billion to the U.S. Treasury in the form of dividends.
"It is vital to the long-term health of our country's housing and financial markets that our elected leaders seek to bring the conservatorships to a conclusion, and to define the government's role and requirements for housing finance in the future," DeMarco said.
The government's footprint in U.S. housing has grown sharply since 2006, when the nation's housing bubble burst and private credit dried up. Fannie Mae, Freddie Mac and the Federal Housing Administration account for nearly nine of every 10 mortgages.
Democrats and Republicans alike agree on the need to scale back that support, but they disagree on the precise role Washington should play in supporting homeownership.
"Clearly there is no simple solution, and a number of fundamental questions will have to be answered. FHFA is taking a number of steps that have potential to transfer some credit risk to the private sector," said DeMarco.
"We will continue to make progress in this area, but if policy makers are serious about limiting the government's role, more direct action may be needed to have significant near-term effects."
He said talks about the government's role in the housing market should cover the topic of whether the limits on the loans that Fannie Mae and Freddie Mac can back are too high and benefit wealthy buyers who do not need help accessing credit.
These so-called conforming loans limits were increased in 2008 to as high as $729,750 in the most expensive real estate markets to stabilize the housing sector at a time when private banks were reluctant to lend.
"Who are the intended beneficiaries of the taxpayers' support? This needs to be on the table and discussed so that we make sure we have the right policies," said DeMarco.
Fannie Mae and Freddie Mac buy mortgages from lenders and repackage them as securities for investors to provide a steady stream of liquidity to the market. Both have turned profits recently, helped by improving housing market conditions, and they have been able to curtail their reliance on taxpayers.
Despite pressure from the White House, DeMarco has refused to allow Fannie Mae and Freddie Mac reduce loan principal for trouble borrowers, arguing that there are other ways to provide mortgage relief at less risk to taxpayers.
His opposition to the proposal has fueled speculation that President Barack Obama would seek to oust him.
On Wednesday, he offered no sign that he was leaving.
"I will continue to pour everything I have into this job for as long I am asked by the president to continue to serve," DeMarco said.