August 6th, 2013
04:40 PM ET
9 months ago

Obama calls for phase-out of mortgage giants Fannie and Freddie

(CNN) – With the housing bust's epicenter as his backdrop, President Barack Obama called Tuesday for a full revamp of the government's involvement in home mortgages, including endorsing a full wind-down of loan giants Fannie Mae and Freddie Mac.

The 2008 government bailout of Fannie and Freddie amounted to one of the most expensive government rescues of the financial crisis, costing billions – a tab the president argued Tuesday should never again be left to taxpayers.

"For too long, these companies were allowed to make huge profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was 'heads we win, tails you lose.' And it was wrong," Obama said.

Fannie and Freddie - known together as the GSE's, or Government Sponsored Enterprises - sustained massive losses as the housing market went bust, requiring taxpayer bailouts that swelled to more than $187 billion. The companies have since paid the Treasury Department nearly $60 billion in dividends as they've returned to profitability, but it's unclear when they'll be completely free of their obligations and how they'll be managed in the future.

The two firms - which don't directly issue mortgages, but rather buy loans from other lenders and repackage them for investors – have a hand in more than half of current U.S. mortgages.

Back in 2006, just 30% of new mortgages were backed by the government, according to Inside Mortgage Finance. But as the housing sector cratered, private capital fled the market and the government's role expanded. In 2012, more than 86% of new mortgages had government backing.

On Tuesday, Obama called for more private backing of mortgages – a notion the president joked "sounds confusing to the folks who call me a socialist." He argued the government should only assume responsibility for mortgages as a last resort, and that bailouts for firms who were overly risky in their lending practices were a thing of the past.

"We can't leave taxpayers on the hook for irresponsibility or bad decisions by these lenders or Fannie Mae and Freddie Mac," he said. "We've got to encourage the pursuit of profit – but the era of expecting a bailout after you pursue your profit and you don't manage your risk well - it puts the whole country at risk. We're ending those days. We're not going to do that anymore."

A Senate plan, introduced in June by Republican Bob Corker and Democrat Mark Warner, would eliminate Fannie and Freddie and replace them with a new agency insuring mortgage-backed securities. Obama said Tuesday he supported those efforts.

He also called for a return to the 30-year fixed rate mortgage, considered a safe bet for homeowners compared to more exotic loans employed before the housing crisis.

His remarks in Phoenix marked a return to the city for Obama, who trekked there in 2009 to offer up a housing plan amid a nationwide plummet in home prices. Phoenix was one of the country's hardest-hit municipalities - residents saw the price of homes slashed by more than half and the foreclosure rate skyrocketed.

The past several years have seen an increase in home prices in Phoenix, though they still are well below their 2006 pre-crash high.

Obama's administration has tried to help underwater borrowers – those who owe more than their homes are worth – through the Home Affordable Modification Program, or HAMP.

But that initiative has been limited in its effectiveness over the past few years, securing principal reductions for less than 120,000 borrowers as of the end of 2012, and it limits such reductions to mortgages that aren't controlled by mortgage financing giants Fannie and Freddie. Obama Tuesday called on Congress to allow all homeowners the opportunity to refinance at current rates.

The stop in Phoenix Tuesday is the latest in a series of trips the president has made over the last two weeks to advance his economic agenda. At an event in Tennessee last week, Obama called for a new "grand bargain" that would revamp the corporate tax code while investing in job creation initiatives.

He was greeted at the airport by Arizona's Republican Gov. Jan Brewer, who angrily shook her finger at Obama at the start of a 2012 presidential stop in her state.

Her greeting this time around was more cordial, and the governor's office said Brewer planned to ask the president to allocate federal disaster funds to the area affected by the Yarnell Hill fire, where 19 firefighters perished on a single day in June.

CNNMoney's James O'Toole contributed to this report.


Filed under: Arizona • Economy • President Obama
soundoff (193 Responses)
  1. Owl Creek Observer

    It took almost six years, but I finally found something coming from The Current Occupant that actually makes sense.

    August 6, 2013 06:27 pm at 6:27 pm |
  2. Mike

    Socialism means that banking gains are privatized but its losses are always socialized.

    Wall. St. should. never. be. bailed. out. Period. Time to revert to capitalism, which is what made this country great.

    August 6, 2013 06:28 pm at 6:28 pm |
  3. Bluejeans in Chicago

    What's next!? Is he going to destroy VA-backed mortgages too?

    August 6, 2013 06:28 pm at 6:28 pm |
  4. Belseth

    I just wonder why Republicans don't like Obama, he's turned into a Republican.

    August 6, 2013 06:29 pm at 6:29 pm |
  5. Mr.Howdydoody

    The problem is, what do you do with all of the secuirties that in the the hands of you and me's 401K's and other investments?
    This is just an attempt to destroy the economy. If you get rid of Fannie and Freddi, you get rid of a lawyer of safety for mortgage companies. Get rid of that safety net and they won't give out as many loans because they will jack interests rates through the roof so they can cover their own butts. The net result is less homes bought and sold. This means less new building, which means less jobs, which means more reliance on the government. And with less people able to buy homes, you force people into moving into apartments in congested cities.
    This is just an attempt to get more people on the Federal Plantation.

    August 6, 2013 06:29 pm at 6:29 pm |
  6. bobcat

    why would the Gov need to back any home loans ????
    right now you can get a fixer upper in Detroit for $5 bucks.. !!
    soon Chicago will have them for $20 .... !!!
    if you cant afford that....no one should lend you money anyways !

    August 6, 2013 06:30 pm at 6:30 pm |
  7. Lagos

    "For too long, these companies were allowed to make huge profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was 'heads we win, tails you lose.' And it was wrong," Obama said.

    And yet he wants the same thing with quasi-government health exchanges.

    August 6, 2013 06:32 pm at 6:32 pm |
  8. paul

    Blah Blah Blah....the government shouldn't allow for the types of bailouts that I lobbied for and approved.....I'm not a socialist...not really....I'm your friend.....you just sit there like a frog in boilling water, paralyzed while I ruin your economy and countRy. Yea for the great Obama.....saying nice patitudes to tickle our ears....but delivering absolutely nothing......WE ARE SUCKERS AND HAVE NO ONE TO BLAME BUT OURSELVES FOR ELECTING THIS PROFESSIONAL MOUTHPIECE!

    August 6, 2013 06:34 pm at 6:34 pm |
  9. tarura

    He's been messing with healthcare, immigration, family and marriage, car and energy industries, budgets.
    Now, trying to demolish the housing business. What else is left

    August 6, 2013 06:35 pm at 6:35 pm |
  10. Bale

    I don't get it. 10 years ago Dodd-Frank said Fannie Mae and Freddie Mac were great long term investments. They pushed Bush and the Congress of that time to push their overhaul. 5 years layer the entire housing market collapsed. This should have happened 10 years ago!

    August 6, 2013 06:36 pm at 6:36 pm |
  11. Dave Rogers

    The man is a stopped clock... and this is his moment to be "right". Fannie and Freddie are too regulated now to be of use to the US government and its campaign contributors. They'll needs be done away with, and something more vulnerable in place in time for the next fleecing of the US.

    August 6, 2013 06:36 pm at 6:36 pm |
  12. paul

    When will this guy stop talking and self promoting and actually DO SOMETHING?

    August 6, 2013 06:37 pm at 6:37 pm |
  13. Mladen Sudarevic

    Good move! I don't often like decisions made by the Obama administration but I have to agree with this one.
    Now, the next good step should be abolishment of tax deductions on mortgages. Now, I’m sure that many of you will argue that mortgage tax deductions are making homes affordable; however, deductions are already calculated into price of mortgages (that means you pay more for your home).
    Sure, home prices would adjust downward; however, this would also make homes more affordable and simply our already crazy complicated tax code. I realize that most people who already own homes would like to keep mortgage tax deductions going but this only adds to government involvement in economy (to detriment of our long-term economic growth and affordability of homes for generations to come).
    Although mortgage interest tax deductions give appearance that they are put in place to benefit consumers they really only benefit large banks.

    August 6, 2013 06:40 pm at 6:40 pm |
  14. cartman

    Just privatize FNMA and FMCC. Make them repay the bailout, remove any provisions for government backing and re list them on the stock exchange. Investors would line up to buy into companies showing billions in quarterly income.

    August 6, 2013 06:41 pm at 6:41 pm |
  15. FUNNY

    He was greeted at the airport by Arizona's Republican Gov. Jan Brewer, who angrily shook her finger at Obama at the start of a 2012 presidential stop in her state.

    Her greeting this time around was more cordial, and the governor's office said Brewer planned to ask the president to allocate federal disaster funds to the area affected by the Yarnell Hill fire, where 19 firefighters perished on a single day in June.

    Hate the president....hate the president...hate the president....oh wait, I need something from the federal govt and the president after all...mayby I should kiss up a bit more. Pathetic. Sounds like Texas and their plant blowing up...we want to secede...we want to secede...oh wait, we need money to fix our lack of regulation blunder...maybe we should kiss up a bit more. Never seen so many Repub governors eat so much crow lately.... No wonder as an Independent I love Christie...he just doesn't care, he gets it taken care of.

    August 6, 2013 06:43 pm at 6:43 pm |
  16. ETPhoneHome

    Fannie and Freddie serve a practical purpose in keeping mortgage lenders liquid so that they can keep originating loans. I think the main problem is that although they have a social mission, they're also publicly traded companies creating a huge conflict of interest. There's no money in conforming 30-year mortgages...all the money is in the exotic stuff. Not surprisingly these companies were run with shareholder interests first and foremost despite their original mission. Also, last time I checked, the loans guaranteed by Fannie and Freddie were guaranteed by Fannie and Freddie, not the federal government. Clearly that worked out as planned.

    I agree that more private companies should start buying a larger portion of the loans instead of having them government sponsored but at the same time I also fear what that will do to the ability to get a home loan. It will be more difficult and more expensive without Fannie and Freddie around, but maybe that's a good thing.

    August 6, 2013 06:43 pm at 6:43 pm |
  17. JB

    Sounds great! This won't in any way hurt consumers! Whenever the main 2 companies buying loans are out of the equation, the American people will no longer be able to get affordable mortgages, so at least they won't have to pay them, right? Don't worry, I am sure Bank of America and the other big banks who started this mess will step in to fill the void at great terms. Stupid politicians and foreclosed on Americans...no clue. Hey, lets all go on a witch hunt because things didnt go our way 4 or 5 years ago. Lets first go after the only ones that we are getting any money back from....

    August 6, 2013 06:46 pm at 6:46 pm |
  18. Jayakumar

    Agree.. and this will drastically reduce risky games that banks play when they borrow money from Fannie and freddie to give out new loans. This time around banks will be more careful not to piss of corporate lenders by giving it out to people who dont deserve loans. But it is going to raise mortgage loan interests since now the risk is going to be higher for banks.

    August 6, 2013 06:49 pm at 6:49 pm |
  19. James

    Fannie & Freddie issued a statement that the American people should phase out Obama !

    August 6, 2013 06:49 pm at 6:49 pm |
  20. JustAnotherVoter

    Sounds like Obama took Romney's advice on this one. Heck, even a blind squirrel finds an acorn every now and then.

    August 6, 2013 06:50 pm at 6:50 pm |
  21. David

    Wow! One of the few policies of his I can back. Fanny and Freddie did not cause the financial crisis, but they played an enormous part. They have also been used by politicians for years to get re-elected by artificially influencing the mortgage markets. I hope this happens.

    August 6, 2013 06:50 pm at 6:50 pm |
  22. R

    They will still exist just not the way the did prior to 2008. Fannie and Freddie back trillions of dollars worth of mortgages, the entities won't/can't just disappear. Also, this will take years to complete.

    August 6, 2013 06:53 pm at 6:53 pm |
  23. johnny _m_mustard

    Another one of your socialist ploys...? Folks this guy is dangerous and we have 1,293 more days of him and it.

    August 6, 2013 06:53 pm at 6:53 pm |
  24. America Shouldn't

    The government should never step in and "save" any bank. They don't learn from the mistake. Why isn't our government saving the Mom&Pop shop when Walmart moves in? It's the same reason. The system needs a kick in the a $ $ sometimes.

    August 6, 2013 06:54 pm at 6:54 pm |
  25. mike Lake Orion Michigan

    Obama is a confused man!

    August 6, 2013 06:54 pm at 6:54 pm |
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