In dramatic opening remarks delivered to the conference organized by the Treasury Department and HUD to discuss the future of Fannie Mae and Freddie Mac, Treasury Secretary Tim Geithner blamed the two government-sponsored enterprises for “avoidable failures” that made the financial crisis worse and resulted in huge losses for taxpayers.

He also announced the Administration will not support returning Fannie and Freddie to the role they played before they entered conservatorship in 2008, “where they fought to take market share from private competitors while enjoying the privilege of government support.”

Geithner said Fannie and Freddie lowered their underwriting standards, providing guarantees for increasingly risky types of mortgages without charging nearly enough to cover the risk. They also were allowed to build up substantial portfolios of mortgage-backed securities, which rose to a level of more than $1.6 trillion at their peak, without the financial resources to cover potential losses.

“These two strategies were pursued to maximize short-term returns to shareholders and senior management. They were possible only because of the toxic combination of a perceived guarantee by the government and an absence of effective oversight. They were not the sole causes of the crisis, but they made the financial crisis worse. And they resulted in huge losses for the taxpayer,” he said.

While opposing a return to their former roles, Geithner had no specific recommendations for the future of Fannie and Freddie, outside of supporting fundamental change. “I believe there is a strong case to be a “carefully designed guarantee in a reformed system, with the objective of providing a measure of stability in access to mortgages, even in future economic downturns,” he said.

Geithner charged the conference with reaching a consensus on four key questions: what role should the government play to provide stability to the housing finance system; what role should the government play in providing financial support to improve access to affordable housing; what should we do about the securitization market more generally; and how do we best manage the transition to a new housing finance system?

“We need to begin the process of weaning the markets away from government programs and make room for the private sector to get back into the business of providing mortgages,” signaling a retreat from the Administration’s past policy of using the GSE to keep mortgage rates low by purchasing large amounts of mortgage backed securities.

The one-day conference includes participants include leading economists and policy makers in the housing sector.