The Obama administration will begin work with Congress to develop a new “financing mechanism” to support rental and affordable housing, Department of Housing and Urban Development Secretary Shaun Donovan said Tuesday. Testifying before the Senate Banking Committee, Donovan and Treasury Secretary Timothy Geithner reiterated to lawmakers the importance of winding down the government’s role in the mortgage markets. Federal regulators gave three options to Washington in February for a system that could replace the government-sponsored enterprises Fannie Mae and Freddie Mac. But in that white paper, the government’s support of the affordable housing and rental markets would remain intact. In one option, the Federal Housing Administration could fill that void. The FHA could also be aided through this new source of cashflow, Donovan said. “This funding stream would support the development and preservation of more affordable rental housing for the lowest-income families to address serious supply shortages,” Donovan said. “On the ownership side, it would support down-payment assistance, counseling or other mechanisms to help qualified low- and moderate-income homebuyers, in a form that does not expose them or financial institutions to excessive risk or cost.” In 2008, Congress authorized the National Housing Trust Fund, but Donovan said it has yet to receive funding. Through it, he said, resources could be provided to address the gaps between what the FHA and what other housing policies can provide. “The funds could be used to scale up support for proven nonprofit partnerships for affordable housing production and preservation that can attract much larger amounts of private capital,” Donovan said. “And funding would help to overcome market failures that make it hard to develop a secondary market for targeted affordable housing mortgages, such as that for small rental properties.” Republicans in the House of Representatives are at work drafting legislation that would establish a new framework for the future of housing finance. Those drafts should be revealed soon, but in the mean time, Geithner continued to stress the importance of getting something done within the next two years. “If you don’t give the market clarity about the endgame, it’ll be hard to get investors to come in,” Geithner said. Write to Jon Prior. Follow him on Twitter: @JonAPrior