WASHINGTON — Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the government should consider “full nationalization” of the mortgage-finance system as the Obama administration plots the revival of a market that was at the center of the 2008 credit crisis.

“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said Tuesday at a Treasury Department conference. “Government is part of our future. We need a government balance sheet.”

Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan gathered industry stakeholders to seek advice as the administration prepares a housing-finance overhaul.

The position taken by Gross, whose firm is a big holder of U.S.-backed mortgage debt, is at odds with industry and government officials who have urged a smaller federal role.

Geithner said the government must reduce its role in housing markets and ensure Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, won’t require future bailouts.

“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support,” Geithner said Tuesday at the conference.

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“The government’s footprint in the housing market needs to be smaller than it is today,” Donovan said, adding that Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee more than 90 percent of all mortgage loans.

An explicit federal guarantee against catastrophic losses could help attract private capital, said Mike Heid, co-president of Wells Fargo Home Mortgage.

The policy challenge will be “how to marry this government guarantee with the maximum use of private capital in a way that minimizes the risk to the taxpayer, encourages competition and ensures no one institution is too big to fail,” Heid said.

 


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