Economists testified before the Senate Banking Committee that the Federal Housing Finance Agency must step up its role to help homeowners, which could stabilize the housing market in the process.

Mark Zandi, chief economist for Moody's, said policy responses helped ease the housing crisis, but more needs to be done to avoid a vicious cycle of default and price declines. That includes his recommendation to extend the Home Affordable Refinance Program to all Fannie Mae and Freddie Mac borrowers.

Zandi estimated 14.6 million homeowners are in a negative equity position and predicted another 6 million will face foreclosure.

"Once house prices start falling, it's very difficult to see where that ends," Zandi said. "I don't think it's worth taking the chance of allowing that to occur."

Reducing the loan principal carries "moral hazard issues" of exactly who receives a write-down, Zandi said. But all could benefit if that boosts the economy, he said.

"If it requires a half million to a million principal modifications, I think that's a reasonable cost to make or a reasonable thing to do to get the housing market going north," Zandi said.

The FHFA and its head, Edward DeMarco, have drawn criticism that they haven't done enough to modify or refinance mortgages, with congressmen asking DeMarco to do more or be replaced. Others alleged Fannie executives "'philosophically opposed' to the concept of reducing principal" squashed a write-down plan back in 2010.

The committee witnesses Thursday also frequently referenced an oft-discussed government REO-to-rental program, as Zandi and professors Christopher Mayer and Phillip Swagel agreed it could boost the market. Zandi called it a "slam-dunk thing" that would stave off future price dips.

Swagel, an economics professor at the University of Maryland, said it should be the focus of housing policy.

"We need the housing market to lift off the bottom," Swagel said. "Unfortunately that means it has to hit the bottom."

The FHFA's hesitance on broad refinancing could be explained by a "conflict of interest" from the government-sponsored enterprises, according to Mayer, a professor at Columbia University. Their portfolios make it harder to wind them down and could influence policy, he said, as reported recently in a series of stories by National Public Radio and ProPublica.

Nearly 1 million homeowners have refinanced through HARP, though that's much lower than initial estimates from the Obama administration.

"Conservatorship as it stands now is laden with conflicts of interest," Mayer said. The FHFA should conserve and preserve assets, Mayer said, but "there's gotta be a place where that's profitable for the GSEs."

It's not clear whether Fannie and Freddie should take on more risk through additional refinancing, Swagel said. He said people have been "pounding on poor Ed DeMarco."

But GSE reform is "very much an impediment to recovery," Swagel said, and the government must move forward and have private capital take on their risks.

As long as Fannie and Freddie remain in conservatorship, Zandi said, "nothing good happens."