A better bargain for middle class homeownership
On Tuesday, August 6, 2013, President Obama laid out a the foundation for what the White House entitled “A Better Bargain for Middle Class Homeownership in America.” In this 30-minute speech made at a high school in Arizona, the President urged the winding down of Fannie Mae and Freddie Mac, the mortgage-giants bailed out by the government in 2008, as part of a strategy to buffer taxpayers from future housing market downturns.
President Obama called for transitioning the business model of Fannie and Freddie into a system, which focuses on private capital and involves government intervention much less significantly, while still promoting the concept of the 30-year mortgage. According to a White House Fact Sheet,
The current housing finance system, where the government guarantees more than 80 percent of all mortgages through Fannie Mae and Freddie Mac and Federal Housing Agency, is unsustainable. A reformed system must have a limited government role, encourage a return of private capital, and put the risk and rewards associated with mortgage lending in the hands of private actors, not the taxpayers.
As you may recall, Fannie and Freddie were nationalized during the 2008 financial collapse and bailed out with $187 billion in taxpayer-funded loans. These Government-sponsored enterprises don’t directly make loans, but buy mortgages from lenders, package them as bonds, guarantee them against default, and sell them to investors. Fannie and Freddie currently own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones.
In the President’s housing speech, he also made references to immigration reform. He argued that immigration reform could stimulate the housing market, as immigrants accounted for 40 percent of new homeowners nationwide between 2000 and 2010.
Three Reasons to End Fannie Mae and Freddie Mac
While President Obama’s housing speech of early August clearly noted the winding down of Fannie Mae and Freddie Mac, pundits and politicians have offered many opinions on this plan. Many argue that winding down Fannie Mae and Freddie Mac means the end of the 30-year mortgage, yet the President’s speech “A Better Bargain for Homeownership,” clearly advocates a continued path to homeownership by means of the 30-year mortgage.
Consider the following benefits of the end of Fannie Mae and Freddie Mac:
- Home loans could fall in number because private capital may tighten lending guidelines. Yet, the reduction in qualified borrowers could make the economy more stable.
- The winding down of GSEs would take the taxpayers off the hook for the kind of emergency bailouts required after 2008, when the U.S. Treasury pumped in nearly $200 billion to keep the two entities operating.
- If the Government were not bankrolling Fannie Mae and Freddie Mac, there would be more funds available for other important political and social issues, such as education and job growth.
The President’s housing speech also mentioned the importance of oversight through Consumer Protection Financial Bureau, a Government agency that will seek to continue to encourage the American Dream of homeownership by working to provide equitable 30-year mortgage programs. Many folks believe that it is exactly this oversight that will be required as we transition into a new phase in housing.