Obama speech calls for U.S. housing system overhaul

WASHINGTON Wed Jan 29, 2014 12:05am EST

Related Topics

WASHINGTON (Reuters) - President Barack Obama renewed his call on Tuesday to wind down mortgage-finance giants Fannie Mae and Freddie Mac and revamp the housing finance system to include a more limited government backstop.

In his State of the Union address, Obama urged Congress to pass legislation that rebuilds the mortgage market to rely more on private capital but that also maintains support for creditworthy borrowers.

"Send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive," Obama said. "The most important investment many families make is their home."

Fannie Mae and Freddie Mac, the two government-run companies that own or guarantee 60 percent of all U.S. home loans, play a huge role in keeping borrowing costs low for homeowners.

Reducing the government's footprint in the housing system would likely increase the cost of taking out a mortgage. The White House said the government must still play a role to preserve easy access to 30-year, fixed-rate mortgages that support the market and benefit middle-class consumers.

A new system, details of which Obama did not spell out, would replace Fannie and Freddie, which drew $187.5 billion in aid from the U.S. Treasury since the U.S. financial crisis as a growing number of loans they backed went sour. Since their 2008 bailout, they have returned to profitability and paid about $185.2 billion in dividends to the government thanks to a surge in the U.S. housing market.

"It is time to turn the page on an era of reckless lending and taxpayer bailouts, and build a new housing finance system that will provide secure homeownership for responsible middle class families and those striving to join them," according to details of the president's proposals provided by the White House.

BIPARTISAN EFFORT

Obama first endorsed a plan to reform the U.S. housing system during a speech last August. The legislative process and implementation of an overhaul will likely take years.

His approach coincides with bipartisan efforts in the U.S. Senate to reform the housing finance system. Senate Banking Committee Chairman Tim Johnson and Senator Mike Crapo, the panel's top Republican, started work on a bill last year.

Ten senators had already co-sponsored a bipartisan bill that has served as a starting point. The measure would provide for government reinsurance that would kick in only after private creditors shouldered large losses.

The Republican-led U.S. House of Representatives has also drafted a bill that would get rid of Fannie Mae and Freddie Mac, but would involve a more limited government replacement. No Democrats support that proposal.

Obama wants to make it clear that "recklessness" on the part of lenders and borrowers that fueled the housing bubble and bust is over, the White House said.

Housing is expected to contribute to economic growth going forward through residential investment and rising home prices that have boosted the net worth of households, allowing for greater discretionary spending.

The White House also said it would support efforts that ensure housing is affordable for first-time buyers and renters.

The housing goals are in line with the theme of Obama's broader message in the State of the Union address, which promotes measures to help boost economic growth.

(Reporting by Margaret Chadbourn; Editing by Peter Cooney)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (4)
Jeff9207 wrote:
Fannie and Freddie did not cause the housing crisis. Private mortgage companies, lending to people with not enough assets or income for the size of house they were buying, or speculators with no capital hoping to flip it, cause the bubble. As house prices rose, Fannie and Freddie were lending to people whose homes would soon be underwater. Even still, their loans outperformed the “private sector” loans by huge margin. And now it looks as though Fannie and Freddie never needed a bailout in the first place. Hank Paulson changed the accounting rules in 2008, then almost immediately declared Fannie and Freddie bankrupt. That was never the case.

Without Fannie and Freddie, or something exactly like them, mortgages will be rare, expensive and short (like in the 1900s). 30 year mortgages will cease to exist. Most people will be renters, not owners.

Jan 29, 2014 8:27am EST  --  Report as abuse
NEWAGER wrote:
Obama at least recognizes that past Democrat policies and forcing lending institutions to make housing loans to those who could not afford to repay them was a huge mistake. I applaud him for that.

Jan 29, 2014 9:54am EST  --  Report as abuse
njglea wrote:
The private banking sector, in concert with their planted cohorts at Freddie Mac and Fannie Mae, caused the housing crisi and meltdown. We MUST have serious regulation if we are going to let the for-as-much-profit-as-we-can-get private sector further into the henhouse. Things like making mortgage companies hold the paper and acutally being mortgage companies. The American dream will die if Wall Street takes total control of OUR land and housing. Highest bidder gets it no matter who or where they are.

Jan 29, 2014 10:27am EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.