Investors called upon to take the reins of the nation’s housing finance from government entities are urging the Obama administration first to address banking industry failures that have hurt their confidence.

The Association of Mortgage Investors on Wednesday said the White House’s plan for reforming the nation’s mortgage system has omissions that could hurt the return of private capital to the $11 trillion market.

Investors say that banks have not owned up to the promises of loan quality they made when creating mortgage securities. The controversy over "representations and warranties" has led investors to demand banks repurchase the loans at a cost that some analysts say could approach $100 billion.

"The future and revitalization of the housing finance market is tied to the past legacy of what happened to precipitate the crisis," Chris Katopis, executive director of the AMI, said in a statement. "Any truly viable solution must address the defective mortgage loans which still reside in pools and trusts."

The U.S. Treasury Department on Friday outlined a range of plans that could eliminate government involvement in the domestic mortgage business by gradually winding down the guarantees provided by Fannie Mae and Freddie Mac.

The two mortgage giants have dominated American home finance as other investors fled during the financial crisis.

Under the proposed model, private market investors would be the primary purchasers of mortgage-backed securities, and banks would effectively hold more loans on their balance sheets. But private capital has yet to return in any significant way, with investors also blaming the soft housing market, low interest rates and competition from Fannie Mae and Freddie Mac. (Reuters)