(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.
I think closing Fannie Mae & Freddie Mac is a bad idea! I think both should be sold by auction to one or more Real Estate Investment Trusts! Well, that's my common sense educated and analytical opinion.
Rethuglicans are like ..."Hated it!"
Democrats are like ...all Hash tag yeah boyee!
The next step in soccialism, is for the government to control the currency. Obama is taking the same path as Hhitler !
GOP please go away, your "lost" in space. And please remove Bonner Head from the House
A "new agency insuring mortgage-backed securities",? Nooo your not a socialist.
My home loan was processed through Freddie. I did some pretty crazy stuff to get it: I made a budget, consulted the "old" rules about how much home I could afford, and then bought something within my reasonable means. I also made sure I had money in the bank in case I lost my job or was affected by any other kind of financial hardship. And you know what? I still have a home! My mortgage is paid on time, every time.
This isn't difficult, folks. What you're approved for is not necessarily what you should spend. I was approved for a whole lot more than I spent, but my budget analysis didn't back it up. If you can't figure out a simple budget and determine how much you should spend then you have no business buying a house. If you lost your job or experienced another hardship beyond your control then you have my sympathies. But if you bought more than what 1/3 of your income can cover after your pre-existing obligations then you dug your own hole- lie in it.
Our President is apparently scared to death of Wall Street, he has avoided any attempt at confronting those who caused our economic collapse from his inauguration to this day. He prefers to blame the system which has been working perfectly until Wall Street changed the rules. He needs to grow a pair of huevos or go home, this has been his modus operandi since he was elected in 2008.
VCMD hit the nail on the head. Most people fail to realize that Fannie and Freddie were government creations forced to go private. Even though they were private, the government gave them more demanding mandates. Mortgages for all was the cry. George Bush had a concern about them in 2002. This led to a congressional hearings in 2004-2005 where 98% of the Democrats called it BS and claimed racial undertones for the hearings. Three years later the housing market went bust.
It's not the fault of Fannie and Freddie that the banks provided mortgages to people that could not afford them, because they don't give mortgages. Why not go after Wall Street that made big money while the market was going higher and then when they failed they begged for taxpayer money so that they could pay their executives HUGE bonuses!
This guy is an empty suit
Sounds good. Won't happen because of those evil manipulative liberal socialist in the Massachusetts. Barney where are you????
We all know banks are responsible for collapse of 2008 NOT Fannie and Freddic. Banks created lier loans and sold it Fannie & Freddic because republicans and democrates pushed them to buy junk. We will never vote for democrate or republican both are working for Wall Street. Fannie & Freddic have already paid $129B out of $189B as 10% dividend and complete sweep of profit since January 2013. Only $60B is left which they will repay by December. Banks paid 5% dividend, why 10% for fannie & Freddic? If they close Fannie & Freddic, there will not be 30 years fixed. The banks are not refinancing even nondefault existing loans even after all those HARP etc. US will go bankrupt within 1 year of closure of Fannie & Freddic.
Man people can't read, Fannie nor Freddie provide loans. They by loans. The government does not force any lender to provide anyone a loan either. Finally, the collapse was not due to people buying more home than they could afford, but due to investors as well as banks driving up housing prices which inevitably could not go up at the rate they did forever. Once the buying stopped investors couldn't dump homes and banks couldn't dump loans. The issue is low capital leveraged for high dollar. Banks no just as they did with S n L, the government always bails them out and that's the problem, learn to read.
Last time Obama visited Phoenix, Janet Brewer angrily shook her finger at him when he landed. Republicans don't want FEMA because they believe states should cover their own emergencies. This time Brewer was cordial because she needs to ask for money from the evil Government for an emergency.
Since Bill Clinton and Frank Raines changed the CRA in JimmyCarter's housing reinvestment act by relaxing the lending practices at fannie and freddi back in 1994, the housing industry has been out of control ever since! Bush tried to stop this as reported by ABC, NBC and the N.Y.Times as reported in an article "new agencency proposed for freddi mac and fannie mae" back on Sept. 11th, 2003, but was blocked by rep. Barney Frank (D) and sen. Chriss Dodd (D). Eventually Dodd a senator from Delaware resigned over this issue! ...finally a Democrat (Obama) who is admitting what Clinton did was wrong!
GOP demanding that we keep Fannie and Freddie alive in 5... 4... 3...
In theory I support Obama on this, but I am old enough to know these leftist social engineers are looking for creative new ways to get mortgages to people without the means to repay them – just like they did the first time around.
I want to see the details first.
Add in affirmative action and you might have something.
I think we should shut Freddie & Fannie down, no more government agency needs to be started up. The government is not suspose to be in the mortgage business. Since it is, and disabled Veterans are sort of government employees. I think they should get a free house. They really paied this debt w/their blood & missing body parts. For once I'd like to see the government stick up for our solders, not their Wall Street backers!
Everybody remember in the mid term elections, do the right thing: VOTE THEM ALL OUT! Look what they done to our economy since 2000, They can't even fix one little shipping company (US Post Office). Are you better off than you were in 1999? If not vote 'em all out. Lady Liberty would appreciate it!
Hmmmm, I seem to remember Bush trying to reign in Freddy and Fannie about 10 years ago (give or take) and Barney Frank wouldn't dare hear of it, going so far as to tell the NY Times that "Freddy and Fannie were just fine"
What a shell game. So we are not going to back the individual housing purchaser we are going to back the investor. The government is still backing bad investment. If I'm not mistaken the securities market not Fannie and Freddie is really what caused the problem. Fannie and Freddie collapsed because they were on a higher floor of a building with a bad foundation. I agree lets get rid of them. But the federal government backing the bad floors underneath is wrong too. Isn't going to prevent bad investing and people not taking risks.
People say kick Obama out. The republicans aint fixing much either. Kick them ALL out. And get some Americans in office, not someone who only cares for their own interest at the risk of the rest of us. Someone who knows what its like to live paycheck to paycheck. Knows how to budget. Etc.
this man is the best in the world at giving you a decoy he takes all the attention off him this is stupid all the middle class and down it would kill them it will make renters out of them
This is one of those rare occasions where I agree with Obama. Why is the government in the mortgage business to begin with?
You're kidding, right.
You arrogant, self-important, irresponsible elitist.
Looks what your last improvement cost us in terms of money. world respect, personal and financial insecurity.
Don't improve our lives any more. We can't afford it.
By the by, where are those high paying jobs you promised? The openness of government? The foreign relations you promised and the security? Accountability to the people who pay your ridiculous Cadillac benefits?
Keeping these promises might serve us well about now!.