PHOENIX — Buoyed by an improving housing market, President Obama on Tuesday proposed a broad overhaul of the nation’s mortgage-finance system, including winding down government-backed Fannie Mae and Freddie Mac. He declared that taxpayers should never again be left “holding the bag” for the mortgage giants’ bad bets.
Obama outlined his proposals in Phoenix, the once foreclosure-riddled city at the epicenter of the nation’s housing crisis. The housing market in Phoenix, as well as in many other parts of the country, has rebounded robustly, with prices in the southwestern city up 66 percent from the low point in 2011.
Despite the nationwide gains, the president said sweeping housing reforms are still needed to ensure that a rejuvenated market doesn’t simply “reinflate the housing bubble.” The cornerstone of that effort is winding down Fannie Mae and Freddie Mac, a proposal with bipartisan support in the Senate.
“For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag,” Obama told a crowd of more than 2,000 at an area high school. He spoke after a tour of a construction company that has been able to hire hundreds of new workers as a result of the region’s housing comeback.
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While the president has previously endorsed overhauling Fannie and Freddie, his remarks Tuesday marked the first time he outlined his specific proposals for doing so.
The president wants to replace Fannie and Freddie with a system that would put the private sector, not the government, primarily at risk for loans. The government would still be involved, both in oversight and as a last-resort loan guarantor.
Obama is also seeking guarantees that a private sector-led mortgage finance system would still ensure wide homeowner access to popular 30-year mortgages at fixed rates.
Making light of criticism from Republicans who have cast him as a big-spending liberal, Obama joked that his calls for deeper private-sector involvement “must sound confusing to the folks who call me a socialist.”
Obama’s mortgage-reform priorities are largely in line with a Senate measure shepherded by Republican Sen. Bob Corker, of Tennessee, and Democratic Sen. Mark Warner, of Virginia, that would wind down Fannie Mae and Freddie Mac within five years. Corker said Obama’s remarks were a sign of real and growing momentum behind efforts to shutter the mortgage giants.
Once flourishing, Fannie and Freddie were bailed out in 2008 by a $187 billion taxpayer-backed bailout. The two enterprises don’t make loans directly, but buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. The enterprises currently own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones.
Obama’s trip to Phoenix marked the latest stop on a summertime tour aimed at rallying the public around his economic policies ahead of looming budget fights with congressional Republicans this fall. It was also a return to the city he visited just weeks after taking office in 2009 to tout the government’s role in bolstering the housing market.