He added that if the struggles of Fannie and Freddie were reflected in the budget, it would push lawmakers and the administration to take action.
Garrett is expected to play a key role in the housing finance reform debate as chairman of the Financial Services Committee subcommittee that oversees Fannie and Freddie.
Speaking at the American Securitization Forum in Florida, Garrett said the government needs to speed up the reductions to the combined $1.5 trillion portfolio of the two mortgage companies.
"We need to more closely look at each of the portfolio components and figure out how to wind them down sooner to protect taxpayers," he said.
His comments came two days before he was scheduled to start the housing reform debate in Congress with a subcommittee hearing on how to overhaul Fannie and Freddie. They also came days before the administration's new deadline to release its recommendations for housing finance reform.
Garrett's suggestion for folding the GSEs into the budget could affect another hot debate on Capitol Hill: the push to raise the $14.3 trillion debt limit. His proposal would make government money pumped into Fannie and Freddie subject to that limit as well.
Winding down the portfolios of Fannie and Fannie more quickly would reduce the government's exposure to interest rate fluctuations, Garret said, and could help the government turn a profit. He said there are "significant unrealized gains" in the two portfolios.
Garrett also said the affordable housing goals for Fannie and Freddie should be eliminated.
"It is absurd that these two entities, under federal government conservatorship and hemorrhaging billions of taxpayer dollars, have their conservator publishing new affordable housing goals for them to hit," he said. “The only goal these two entities should currently have is to reduce their burden on the American taxpayer."
Conservatives have long argued that government pressure to increase homeownership forced the GSEs to take on riskier mortgages, which contributed to the sub-prime mortgage crisis.
Garrett made clear that as far as he is concerned, there is no return to the old housing finance system.
"It would be foolish for us to go back to anything close to the system we are transitioning away from," he said.
Instead, he pushed for the housing finance system to shift wholesale to the private sector, with government input limited to first-time homebuyers and rental housing, and argued that any such government assistance should be on the government's budget and appropriated annually by lawmakers.
However, despite his laundry list of recommendations, Garrett acknowledged the limitations he and other House Republicans still face.
"It is important to remember that Republicans are not in charge of Washington, Democrats are. Democrats still control the Senate, and Democrats still wield the veto pen in the White House, at least until 2012," he said.