President Barack Obama endorsed the bipartisan bill proposed by lawmakers in the Senate to wind down mortgage giants, Fannie Mae – Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac – Federal Home Loan Mortgage Corp (OTCBB:FMCC) during his speech in Arizona.
Obama planning to reduce risk in mortgage market
According to President Obama, it is now time for the United States government to reduce its role and risk in the mortgage market to ensure that the housing bubble endured by the country will never happen again. During his speech, the President outlined his plan to revamp the two mortgage giants rescued by the government from bankruptcy in 2008.
“For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was ‘heads we win, tails you lose,” said President Obama. Fannie Mae – Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac – Federal Home Loan Mortgage Corp (OTCBB:FMCC) were placed under conservatorship after receiving $188 billion in tax payers money to continue its operations.
President Obama emphasized that homeownership is the “heart of the American dream”, and it is the most “tangible cornerstone” of a secure economy. He wants to make sure that Americans will continue to have access to 30-year mortgages with a fixed interest rate.
Obama to support both parties
Last month, the President stated that he would support the efforts of both parties to overhaul Fannie Mae – Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac – Federal Home Loan Mortgage Corp (OTCBB:FMCC), and to create a new housing finance system.
According to the President, he will only sign a legislation that would make the private sector primary responsible in buying and guaranteeing a majority of mortgages from banks. President Obama wants the private sector to take the primary risk for the two companies.
The President said, “First, private capital should take a bigger role in the mortgage market. I know that sounds confusing to those who call me a socialist — I saw some posters when I came in — but I actually believe in the free market… Private lending should be the backbone of the housing market.”
Government responsible for mortgage processed
The Obama Administration believe that the current housing finance system is unsustainable given the fact that the government was responsible providing guarantee to more than 80 percent of all the mortgages processed through Fannie Mae – Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac – Federal Home Loan Mortgage Corp (OTCBB:FMCC).
According to the President, the Federal Housing Authority should be strengthened to maintain housing affordable to first-time home buyers. He also encouraged local policy makers to make rental housing more affordable.
President Obama urged lawmakers to incorporate his plans in a bill that would allow homeowners to refinance their mortgages at the current rates, and to make the process easier for qualified buyers to buy homes that they can afford.
“If we take the steps we talked about today, I know we will restore not just our home values but also our common values. We’ll make owning a home a symbol of responsibility, not speculation — a source of security for generations to come, just like it was for my grandparents,” said President Obama.
The privatization of Fannie Mae – Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac – Federal Home Loan Mortgage Corp (OTCBB:FMCC) is also supported by several hedge fund managers. However, an analysis from Tactical Rabbit indicated that such initiative is highly unlikely because of political hurdles, and the risk of hurting the recovery of the housing market.