WASHINGTON Jan 28 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
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.