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WASHINGTON — The call from business for less government has a notable exception: the mortgage market.

The Obama administration invited banking executives Tuesday to offer advice on changing the government's role in backing the mortgage market. While they disagreed on the exact level of support needed, the group overwhelmingly advocated for the government to maintain a large role in the $11 trillion market.

If the government pulled out, millions of Americans wouldn't be able to convince banks to take the risk of giving them home loans, the executives said. Ending government support could lead to a spike in mortgage rates. That could deter many from buying homes, and banks, mortgage lenders and Realtors would lose money over time.

"It will take on a different form, but there is a role for government," Kevin Chavers, a managing director at Morgan Stanley, said in an interview.

Most attendees agreed the time had come to do away with Fannie Mae and Freddie Mac. Rescuing the two mortgage giants has cost the government nearly $150 billion so far.

Bill Gross, the managing director for bond giant Pimco, suggested Fannie and Freddie should be formally merged into the government. He also called on the administration to allow millions of homeowners to automatically refinance their loans to help stimulate the economy.

A more widely held view at the conference is for the government to do away with Fannie and Freddie, and instead provide a guarantee that mortgage investors get paid even if borrowers default in droves.

Figuring out a plan for Fannie and Freddie is also a political challenge for President Barack Obama and his party. Republicans have seized on the administration's management of Fannie and Freddie to illustrate Democrats' push for growing the reach of the federal government.

While the banking industry has joined Republicans in criticizing the administration for instituting stronger regulations of Wall Street, they support the government playing a large role in the mortgage market.

"There would be a lot of homeowners who wouldn't be able to afford homes because we'd be dealing with higher interest rates." said S.A. Ibrahim, chief executive of mortgage insurer Radian Group Inc.

Treasury Secretary Timothy Geithner pledged on Tuesday "fundamental change" to the structure of Fannie and Freddie. The mortgage giants profited tremendously during good times but burdened taxpayers with losses when the housing market went bust. He said the two companies weren't the only cause of the financial crisis, but made it worse.

Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans – even after the housing market collapsed.

The two companies, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance.

Geithner did not offer a specific exit strategy for Fannie and Freddie. But he said "it is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again." The administration is expected to offer a plan next year.

One option that dominated the discussion Tuesday is for the government to collect money from the mortgage industry and set up an insurance fund that could be used to cover losses during a severe downturn.

This would prevent taxpayers from having to foot the bill for the industry.

Some want the administration to take more dramatic actions.

Gross said Fannie and Freddie's function should be consolidated into one government agency that would issue mortgage-backed securities. Without such a solid guarantee, mortgage rates would soar, he warned.

He also told the administration that the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions of home loans backed by Fannie and Freddie.

Refinancing those loans at the lowest mortgage rates in decades would give Americans more money each month. That would boost consumer spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent, he said.

Without such stimulus in the next six months, Gross said, the economy will move at a "snail's pace."

Obama officials say they do not plan to enact such a program, which has been the subject of intense rumors on Wall Street in recent weeks.

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