(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.
Well, thats what, three good ideas since hes been in office...
However, what needs to be phased out is the Fair Lending Law.
Sorry peeps. If you cant afford a home, you cant have one.
I can afford a home and dont want one. So Im sure you will get by renting.
"ya, they're onto us and we got all the mileage out of this scam as we could. Time to change names and start a new scam"
capitalism works great as long as the government is their to bail you out-at least the rich
"We can't leave taxpayers on the hook...". Instead we're going to, "eliminate Fannie and Freddie and replace them with a new agency insuring mortgage-backed securities." So, if we insure the securities, how does that take taxpayers off the hook?
The snake said give me a ride down the hill, the man said "no you're a snake" The snake said I won't bite" So the man puts the snake in his shirt, and as he's giving snake a ride, the snake bites him.
Moral of the story, Obama's not trustworthy. He's constantly moving from subject to subject. The middle class is a doormat to this snake. The reason he jumps around so much is because that's what Saul Alinsky taught. Only fools place their hopes in false promises! Jesus transcends Obama's bribes.
There will still be far right conservatives who will disagree or claim it's their idea. Sad
I don't believe securities should be insured. Investors who buy them should assume the risk if they fail. That's what investments are all about. If you can profit but can't lose it encourages irresponsible investing. AIG insured MBSs and got stuck with billions in losses because no one understood the risks involved, thanks to rating agencies rubber stamping those MBSs with AAA ratings.
About time....also privatize SS too
You know it wasn't Freddie and Fannie that killed the economy ... it was the FED (under Bill Clinton) ... MANDATING that Freddie and Fannie HAD TO buy sub prime mortgages ...
Haaaa..classic DC double-talk for bigger government.."would eliminate Fannie and Freddie and replace them with a new agency insuring mortgage-backed securities. Obama said" translation: replace one money pit for another one run by our failure of a government who cant even deliver a letter without going broke. WAKE UP!!!!!
Sounds great in the abstract but what private lender is going to issue a 30-yr, fixed-rate mortgage with no pre-payment penalty. If interest rates go up you're stuck with a long-term below market yield investment. If interest rates go down all your borrowers will simply refinance and cash you out. It's a no-win. If you rely on the private market you will get what commercial borrowers currently receive, floating rate, short-term loans with pre-payment penalties.
People.. People.. People... please don't let the wool be pulled over your eyes. They are just getting rid of Fannie and Freddie. They will do the same thing with an agency which simply has no moniker.
We didn't buy it when GMAC became Ally to hide their shame and continue doing business just like before... and we don't buy it now!
Guess he got his use out of them.
ACORN is where Barack Obama cut his community organizing teeth. Senator Obama taught ACORN members how to intimidate and confront individuals and companies at the Midwest Academy. Senator Obama not only worked closely
with ACORN in South Chicago but was their lead lawyer. Senator Obama sued banks who denied home loans to those unable to pay and forced Chicago banks to grant home loans to the poor and minorities. Senator Obama, as a
board member of the Woods Fund, gave grants to ACORN.
If you remember it was ACORN that was to get $500 million in the initial bailout bill proposed by Democrats.
There is a great chart here showing the links between Senator Obama, George Soros, Bill Ayers, the Woods Fund (run by Obama and Ayers), Fannie and Freddie, and the Obama Campaign (which hired ACORN to register voters). You may have also heard about ACORN and voter fraud cases and convictions in multiple states.
Never in the history of America has an organization like ACORN done so much to destroy our economy. Never in the history of America has a Presidential candidate had such close and long lasting ties with an organization that intimidates, confronts and coerces to get their way using your and my tax dollars.
He must have really "bumped his head" cause there's sensible talk coming out his mouth.
Gotta be a catch somewhere.
Without Fannie and Freddie to buy loans, the mortgage banks will have to use their own money. New loans will be fewer than before for people that are buying a house to actually live in.
But wait, eliminating two agencies and creating another that does pretty much the same thing. How is that a change?
While we're at it, let's start taking down BofA, Wells Fargo, Chase, all the major banks. They're nothing but greedy money hoarders and I'm sick of them.
Hmm, not sure what I think. The president could propose a Cute Puppies Get Hugs law and I would be suspicious of his motives, and wondering which of his cronies gets rich from it.
On top of this, revamp welfare programs into working programs.
except for one problem...WHERE'S THE CRIMINAL PROSECUTIONS OF ALL OF THESE LOAN OFFICERS, CEO, ETC?? our government is so intertwined that they refuse to prosecute! their biggest fear?? their own investments and pensions going downhill. yep! you hear that right!
I was all in agreement right until he basically said the two agencies were going to roll into one. More smoke and mirrors. More shell game. So disappointing.
Smoke and mirrors. Doesn't sound like he is changing a thing, just putting everything in one basket – maybe to erase past failures and point to a "new" program thats unstained...for a while.
I like the pres, but who told him these ideas made any sense.
1. Close Freddie and Fannie, and make a new agency – how much will that cost?
2. New agency will only insure, hmmm, like AIG insured mortgage based securities, and who the US taxpayer had to bail out (yeah, they paid the cash back, but sold all the underwater mortgages to the gov't – via Freddie and Fannie I think). So, insuring mortgages, no safter than buying them up like Freddie and Fannie do now.
3. Outrage over Freddie and Fannie making money at taxpayers expense, what about AIG, Citibank, etc, etc, and if you want to stop CEO's etc from scamming the people, try taking away all their illicitly gained money and throwing them in with lifers? That's a deterrent, not creating a new smoke screen for rubber stamping bad mortgages.
4. 30 yr mortgage, then 3/4 of the people could never buy a house, all the stupid ballon 3 yr mortgages were created to allow people who couldn't afford real estate to join the party, drive up the price, so those at the top of the pyramid scheme could get rich quick. Realted: Why can't the people afford 30 yr mortgages, wage stagnation for 20 yrs while the top 10% richest cornered 50% of the wealth in America (doubled their take in other words).
5. Freddie and Fannie worked for DECADES unitl the masters of the universe bribed congress to "privatize" them, allowing them to do whatever they wanted to make money so the execs could get their double digit raises and bonuses, and so the rest of the mortgage market could write all the bad mortgages as fast as they could, pocketing the cash and leaving taxpayers with the tab. Yeah, through Freddie and Fannie the whole mortgage market was controlled, ensuriing if you didn't have good credit, a good job and that the mortgage and related housing costs would only add up to 30% of your income, you didn't get to buy a house. America became the envy of the world under these rulles. So, don't blame Freddie and Fannie, blame the rich and powerful who gutted them, and gutted America just to double their already bloated hedge fund accounts.
We should get rid of the Mortgage Interest Deduction. If we don't want the gov't to help people GET mortgages, we shouldn't let the government help people KEEP mortgages.
But really, I think both programs are a positive and just need more oversight. Like protecting them from scumbags like the mortgage lenders of the housing bust.
Didn't the Republicans want to do this a few years ago? BTW I don't trust Obama it will cost us one way or the other