Fed: Fannie, Freddie Could Save Housing Market

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The Federal Reserve said that Fannie Mae and Freddie Mac could play a role in turning the housing industry around, proposing that the loan programs get more involved in the government's housing refinance program.

"The challenge for policy makers is to find ways to help reconcile the existing size and mix of the housing stock and the current environment for housing finance," Fed officials said in a paper sent Thursday to members of the Senate Banking Committee and the House Financial Services Committee.

"Fundamentally, such measures involve adapting the existing housing stock to the prevailing tight mortgage lending conditions," they said.

Fed officials reportedly believe the weak housing industry has been a major roadblock to an economic recovery.

But many in Congress are likely to oppose the Fed's suggestion.

The central bank has tried to stimulate the economy by lowering key interest rates close to zero. The government took over Fannie Mae and Freddie Mac in 2008 as they came close to collapse.

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