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Obama outlines plan for encouraging ‘responsible homeowners’

The president outlined a five-point plan Monday that, among other things, would bring an end to Fannie Mae and Freddie Mac.
/ Source: MSNBC TV

The president outlined a five-point plan Monday that, among other things, would bring an end to Fannie Mae and Freddie Mac.

Workers build a new home at the Pulte Homes Fireside at Norterra-Skyline housing development on March 5, 2013 in Phoenix, Arizona. (Photo by Justin Sullivan/Getty)

President Obama vowed that he would help to “make owning a home a symbol of responsibility, not speculation, [and] a source of security for generations to come” in a major address regarding housing policy Tuesday in Phoenix, Ariz.

“A home is supposed to be our ultimate evidence that here in America, hard work pays off; that responsibility is rewarded,” said the president. While his remarks were short on specifics, he sketched out the broad contours of a five-point plan which includes passing immigration reform, making it easier for homeowners to refinance their mortgages, and investing in affordable rental housing.

Obama also called for Fannie Mae and Freddie Mac to be permanently shuttered, in a section of the speech that was making headlines before it was even delivered. Again, the president did not say specifically how the two government-sponsored enterprises should be phased out, though he did endorse the efforts of a “bipartisan group of Senators.” That was most likely a reference to Democratic Senator Mark Warner of Virginia and Republican Senator Bob Corker of Tennessee, who are currently working together on a bill that would close down Fannie and Freddie within five years.

Dean Baker, co-director of the Center for Economic and Policy Research, called the proposal to close down Fannie and Freddie “really wrong-headed.”

“If you get rid of Fannie and Freddie, I see zero rationale for the sort of convoluted guarantee scheme that the Obama administration is planning on setting up,” he said. “It’s basically a plan for subsidizing mortgage-backed securities,” financial instruments which played a key role in the 2008 financial crisis.

The Corker-Warner bill would replace Fannie and Freddie with a “public guarantor” known as the Federal Mortgage Insurance Corp.—essentially an explicit safety net against massive losses in the mortgage-backed securities market, to replace the implicit guarantee that the federal government would bail out Fannie and Freddie if their losses were too great.

President Obama described this plan as the “limited government” solution, and joked that his proposals would come as surprise to those who thought of him as a “raging socialist.” But American Enterprise Institute scholar Edward Pinto predicted the FMIC would “be even larger and more pervasive over time” than Fannie and Freddie.

“The government guarantee itself is dangerous,” he said. “The government doesn’t know how to price the risk.”

Baker had the opposite complaint. The problem, he said, is not that the government is interfering in financial markets; instead it is that the president’s goal seems to be “to preserve the financial structure we’ve had in place.”

“The public has no interest in mortgage-backed securities, so I think it’s unfortunate that the task here is to see how we can have mortgage-backed securities without Fannie and Freddie,” he said.

The president also urged the Senate to confirm Rep. Mel Watt, D-N.C., to be head of the Federal Housing Finance Agency, the nation’s top housing regulatory agency. Obama first nominated Watt back in May.

“He’s the right person for the job, and Congress should give his nomination an up-or-down vote without any more obstruction or delay,” he said.

Watch President Obama endorse a “wind down” for Freddie and Fannie below:

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