Obama speech will call for limiting government role in housing

WASHINGTON Tue Jan 28, 2014 9:18pm EST

WASHINGTON Jan 28 (Reuters) - President Barack Obama will renew 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, the White House said.

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

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.

"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," the White House said in a statement.

A new system 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.

Obama's 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 first 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 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 burst 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 is expected to promote measures to help boost economic growth.

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.

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