PHOENIX — President Obama hailed both this city’s and the country’s comeback from the housing bust Tuesday and said it was now time to reduce the federal role and risk in the mortgage market “to make sure the kind of crisis we went through never happens again.”
He proposed to “wind down” Fannie Mae and Freddie Mac, for the first time outlining his approach to overhauling the two giant mortgage-finance companies that were taken over by the government when they failed nearly five years ago. The companies, which Obama described in an appearance here as “not really government, but not really private sector,” recently began to repay taxpayers.
“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,” the president said. “It was ‘heads we win, tails you lose.’”
Since early 2011, the administration has voiced support for overhauling Fannie Mae and Freddie Mac, which long benefited from an implicit government guarantee. Years ago the companies came to symbolize a self-dealing Washington culture beneficial to both parties, and especially Democrats, but Obama’s remarks on what comes next were his most specific. For several years, the administration held back from revamping the mortgage-finance system for fear of rattling a weakened market.
Obama on Tuesday endorsed the thrust of bipartisan legislation from a Senate group that would “end Fannie and Freddie as we know them.” The so-called government-sponsored enterprises for decades bought and sold mortgages from financial institutions to provide money for the banks to keep lending to home buyers.
Under Obama’s principles, which he said were reflected in the Senate bill taking shape, Fannie Mae and Freddie Mac would further shrink their portfolios and lose the implicit guarantee of a federal government bailout. Instead, private investors would be most at risk, with the government a secondary guarantor.
“First, private capital should take a bigger role in the mortgage markets. I know that sounds confusing to folks who call me a socialist,” Obama said, drawing laughs and applause. “I believe that our housing system should operate where there’s a limited government role,” he added, “and private lending should be the backbone of the housing market.”
The president said that any measure he signed into law “should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage.”
“That’s something families should be able to rely on when they’re making the most important purchase of their lives,” he said.
Senator Mark Warner, Democrat of Virginia, who is part of the bipartisan effort on the Senate banking committee, welcomed the president’s endorsement. “It’s good to see additional momentum,” he said in a statement.
Brian Gardner, a senior vice president in Washington at Keefe, Bruyette & Woods, wrote to clients that Obama’s address on mortgage finance was “important because the administration has not discussed it in some time.” Despite the presidential push, he said, Congress is not likely to approve a bill before 2015.
Separate legislation in the Republican-controlled House would remove the government from the mortgage market, including from the decision whether to keep providing the 30-year mortgage.
Obama’s focus was homeownership, but he emphasized the need for more affordable rental housing more than he had before. Advocates have called for a “rebalance” of government subsidies, which they say have too long been skewed toward homeownership and mostly benefit the affluent.