It will be a rainy day in Phoenix when Barack Obama supports getting the government’s heavy hand out of the mortgage industry.
As it happened, under the pitter-patter of raindrops, President Obama proposed exactly that Tuesday in his “responsible home ownership” speech at Desert Vista High School.
Well, out of the mortgage-guaranty business, at least.
It was the most intriguing policy element of his speech, ostensibly about economic recovery. Obama proposes “winding down” the federal government’s role as the guarantor for home mortgages via Fannie Mae and Freddie Mac, the one-time “government-sponsored enterprises” that played such a huge role in the real estate meltdown of 2008-09.
While the details remain thin, the president’s plan appears to be to limit, but not shut down entirely, the federal government’s role in the mortgage market. He argues, for example, that “we should preserve access” to the 30-year, fixed-rate mortgage — the future of which is by no means guaranteed in an entirely private mortgage market.
Just how that occurs in a mortgage market dominated by private capital is unclear, though. If capital markets shy away from 30-year, fixed-rate mortgages, how does the government assure their existence if not with guarantees (whether implicit or otherwise)?
Obama wants a government role in housing in other ways, too. He is proposing the banks pay fees based on the value of mortgage-backed securities. Revenues would be looped back to help underwrite home purchases by poorer borrowers and to finance low-income home building.
The House Financial Services Committee is a bit ahead of the president on mortgage-industry reform. The Protecting American Taxpayers and Homeowners Act came out of committee just prior to the congressional recess. It pretty much eliminates Fannie Mae and Freddie Mac altogether, providing for government backing of mortgages only under certain economically troubled conditions.
This remains a difficult time for the concept of home-ownership. The percentages of people under 35 years old and minorities owning homes have tanked.
At the same time, the financial crash put taxpayers on the hook for $200 billion in failed mortgages. In that light, the fact that Fannie Mae and Freddie Mac, now fully under the federal umbrella, guarantee 90 percent of all U.S. mortgages is not a comforting thought.
Those facts led the president and House leaders to the same conclusion. The president’s speech and the House committee’s action give them reason to sit down, work together, “take just a few bold steps” and find a path to compromise on the future of mortgages.