HUD nominee Castro urges Congress to end Fannie Mae and Freddie Mac 'duopoly'

By Elvina Nawaguna

WASHINGTON (Reuters) - President Barack Obama's nominee to lead the Department of Housing and Urban Development, Julian Castro, urged lawmakers on Tuesday to move forward with efforts to shutter Fannie Mae and Freddie Mac, saying the current housing finance system is not serving Americans well.

Castro told the Senate Banking Committee that if confirmed he would seek to ensure taxpayers are never again on the hook in a housing crisis as they were when the government stepped in to bailout the two mortgage financiers.

"I absolutely believe that there are better alternatives than what we have in place with this duopoly and with this conservatorship," Castro said.

Freddie Mac and Fannie Mae were seized by government in 2008 as losses on mortgages they backed threatened their solvency. The companies, which own or guarantee about 60 percent of all U.S. mortgages, eventually soaked up $187.5 billion in taxpayer funds. They are now profitable and have returned more to the government in dividends than they received in aid.

A Senate committee last month passed a bill to wind down the two entities, but opposition among Democrats who fear it could drive up lending costs and give big banks too much control over mortgages make its enactment unlikely.

Castro, mayor of San Antonio, Texas, was nominated by Obama last month to replace Shaun Donovan, who was picked to lead the White House budget office. Castro has been lauded for his housing and economic development programs in San Antonio, the nation's seventh-largest city.

If confirmed by the Senate, as widely expected, he would step into HUD at a time when the U.S. housing market lags the rest of the economy in recovery and still-tight lending terms make it hard for many Americans to obtain mortgages.

Castro would inherit the Federal Housing Administration, a troubled government mortgage insurer under HUD that was forced to tap $1.7 billion in taxpayer funds last year.

The FHA, which is charged with making homeownership affordable to low-income buyers, is under scrutiny for increasing its mortgage insurance fees to shore up its finances, an action that has locked out thousands of potential buyers.

Castro said it was possible to balance FHA's mission of helping low-income borrowers with the need to keep it financially sound.

"My perspective, whether it relates to the requirements for down payments or other measures, is that we achieve this balance to stay within the mission of the FHA - the historic mission to ensure that first-time homebuyers, that folks of modest means who are creditworthy, that they have the opportunity to reach the American dream of homeownership," he said.

Castro, a graduate of Stanford University and Harvard Law School, gained national prominence when he delivered the keynote address at the 2012 Democratic National Convention.

As HUD secretary, he would be a step closer to national leadership. Many in the Democratic Party view him as a potential 2016 vice presidential nominee.

(Reporting by Elvina Nawaguna; Editing by Tim Ahmann)