Buoyed by an improving housing market, President Barack Obama on Tuesday proposed an 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 "re-inflate 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.
The president also tried to link his housing proposals to immigration reform, his top second-term legislative priority. He argued that legal immigration would allow more people to purchase homes, thereby raising home values.
“It’s pretty simple,” he said. “When more people buy homes, and play by the rules, home values go up for everybody.”
He also said that considering what the immigration bill can do for homeowners, “that’s just one more reason Republicans in the House should stop dragging their feet and get this done. “
In fact, according to the 2012 State of the Hispanic Ownership Report, despite the difficult environment, “Hispanics continue to play an increasingly significant role in the nation’s home purchase market.”
In the 12-year period between 2000 and 2012, according to the report, the number of Hispanic homeowners grew from 4.24 million to 6.69 million – a remarkable increase of 58 percent at a time when the rest of the U.S. population saw a net increase of only 5 percent.
While the president has previously endorsed overhauling Fannie and Freddie, his remarks Tuesday marked the first time he outlined his specific priorities 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 raging socialist every day."
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 legislation would wind down Fannie Mae and Freddie Mac within five years.
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.
Based on reporting by The Associated Press.