WASHINGTON (AP) — President Barack Obama is proposing to overhaul the nation’s mortgage finance system, including shutting down government-backed Fannie Mae and Freddie Mac — a plan with bipartisan support on Capitol Hill.
Obama will also insist that popular 30-year mortgages be widely available to borrowers, even in a system that would rely more on the private sector than the government to guarantee loans.
The president was to outline his proposals Tuesday at a construction company in Phoenix, once the epicenter of the housing crisis following the 2008 economic collapse. The housing market in the region, as in much of the country, has rebounded in recent months, buoyed in part by low interest rates.
The president’s trip marks the latest stop on his summertime economic tour aimed at refocusing his agenda on middle-class Americans still struggling to recover from the recession. The collapse of the housing market in particular had a dramatic impact on people’s lives and the economic viability of communities nationwide.
“So many Americans across the country view their own economic and financial circumstances through their homes and whether they own a home, whether their home is underwater, whether they feel like they have equity in their homes,” White House spokesman Jay Carney said Monday.
Senior administration officials said Obama would focus in Phoenix on shifting more of the burden for supporting the nation’s massive mortgage market to the private sector. A centerpiece of that effort is winding down Fannie Mae and Freddie Mac, the mortgage finance operations that received a $187 billion taxpayer-funded bailout in 2008.
The White House has previously lauded efforts to achieve that goal spearheaded by Sen. Bob Corker, R-Tenn., and Sen. Mark Warner, D-Va. While Obama will outline his own proposals Tuesday, his plans are largely in line with the Senate overhaul.
“He’s encouraged by the bipartisan progress we’ve seen on Capitol Hill,” Housing and Urban Development Secretary Shaun Donovan told reporters traveling with Obama aboard Air Force One. He said that like the immigration overhaul Congress is pursuing, Obama doesn’t expect to agree on every detail.
Obama’s plan would phase out Fannie and Freddie, replacing them with a system that relies on the private sector to buy mortgages from lenders. Officials said the government would only step in to pay out mortgage guarantees after private capital has been exhausted and said private capital would bear the substantial majority of any losses.
Built into that system would be a guarantee that 30-year mortgages would still be available. Officials said that would involve some type of government guarantee for lenders, though they did not detail what that would entail.
Obama’s advisers did not outline a specific timeframe for winding down Fannie and Freddie. The Corker-Warner legislation would shutter the operations within five years.
Fannie and Freddie don’t make loans directly, but buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. The enterprises currently own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones.
Against the backdrop of Phoenix’s reinvigorated housing market, Obama will also tout refinancing proposals that gained little traction on Capitol Hill when he first unveiled them last year. Among his proposals is a call for expanding refinancing eligibility for homeowners who do not have government-backed mortgages.
The president will also look to link his housing proposals to immigration reform, his top second-term legislative priority. Officials said he will argue that legal immigration can stimulate the housing market. According to the administration, immigrants accounted for 40 percent of new homeowners nationwide between 2000 and 2010.
The officials insisted on anonymity in order to preview the president’s remarks ahead of his trip.
The nationwide housing recovery has been providing critical support to the economy at a time when manufacturing and business investment have stagnated. Steady job growth and low mortgage rates in the past year have also fueled more home sales. The increased demand, along with a tight supply of homes for sale, has pushed home prices higher. That’s encouraged builders to start more homes and create more construction jobs.
The recovery in Phoenix is emblematic of the larger improvements happening in many parts of the country.
Just two years ago, the region was in the throes of the worst housing collapse in the country, with prices down nearly 60 percent from their June 2006 peak and banks foreclosing on 70,000 homeowners a year. While the current median home price remains below peak, the levels have risen 66 percent from September 2011. Buyers are plentiful and homes for sale scarce, leading to bidding wars for resale homes.