The government’s failure to overhaul mortgage giants Fannie Mae and Freddie Mac is pushing the U.S. toward nationalization of the mortgage market, and would-be homeowners will be the losers if competition between private companies isn’t restored.

That’s according to Jim Millstein, the former Treasury Department official who oversaw the reorganization of American International Group Inc., who thinks the government will have to get into the business of reinsuring mortgages if it wants to restore the private sector’s role in mortgage securitization, and reduce taxpayer exposure to Fannie and Freddie.

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