Obama to back mortgage finance reform to speed housing recovery
By Mark Felsenthal and Margaret Chadbourn
WASHINGTON | Mon Aug 5, 2013 8:03pm EDT
(Reuters) – President Barack Obama will propose overhauling the U.S. mortgage finance system in a speech on Tuesday, weighing in on a tangled and polarizing problem that was central to the devastating financial crisis in 2007-2009 and that continues to slow the economic recovery, the White House said.
Obama will propose eliminating mortgage finance entities Fannie Mae andFreddie Mac over time, replacing them with a system in which the privatemarket buys home loans from lenders and repackages them as securities for investors, senior administration officials said. The mortgage securitization process is deemed essential to the smooth flow of capital to housing markets and the availability of credit.
The government’s role would be relegated to providing some form of insurance or guarantee, and to providing oversight, according to officials and a White House statement.
The departments of Treasury and Housing and Urban Development have been working on an outline for housing finance reform. They outlined several options in a white paper to Congress in 2011.
After plunges in home values that wiped out an estimated $7 trillion in homeowner equity and wrecked many Americans’ finances, housing markets are staging a modest recovery. Obama, as part of a series of speeches pushing for steps to boost tepid economic growth, is focusing on housing issues in a speech in Phoenix, Arizona, in one of the regions hardest hit by the housing bust.
The president generally agrees with the bipartisan Senate proposal that would replace Fannie and Freddie with a system that would allow private firms to securitize mortgages, a senior administration official told reporters in a conference call. A government reinsurer of mortgage securities could backstop private capital in a crisis, the official said.
Obama would want the Senate measure to go farther in helping first-time home buyers and in making sure affordable rental housing is available, the official added.
The Senate bill, though, remains at odds with the bill advancing in the Republican-controlled House of Representatives that would liquidate Fannie Mae and Freddie Mac over five years and limit government loan guarantees.
RESTRUCTURING MORTGAGE SYSTEM TO TAKE YEARS
Fannie Mae and Freddie Mac became dominant players in housing finance when private lending to home-buyers declined after the financial crisis. The government-backed companies own or guarantee more than half of all U.S. home loans and are critical to keeping capital flowing to lenders and borrowers.
(Reporting by Mark Felsenthal and Margaret Chadbourn; editing by Jackie Frank)
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