Obama sounds Fannie and Freddie death knell

by Ryan Smith07 Aug 2013

President Barack Obama called for the replacement of Fannie Mae and Freddie Mac with a new government mortgage reinsurer that would be more insulated from financial reverses.

Obama made the case for a new government reinsurer at a speech Aug. 6 in Phoenix. The reinsurer would be part of a new mortgage system in which private capital would be required to take at least 10 percent of first losses on mortgage securities before the government stepped in.

The proposed new system is part of a Senate bill introduced by Bob Corker (R-Tenn.) and Mark Warner (D-Va.) that would replace Fannie and Freddie, which were taken into government conservatorship after a series of high-risk loans left them spiraling the drain of insolvency.
“For too long, (Fannie and Freddie) 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.’ And it was wrong,” Obama said Aug. 6. “The good news is that there’s a bipartisan group of Senators working to end Fannie and Freddie as we know them.”
The National Association of Home Builders was largely supportive of Obama’s proposal. “NAHB applauds President Obama for affirming the importance of maintaining a federal backstop as part of efforts to revamp the housing finance system and protect the 30-year mortgage,” NAHB Chairman Rick Judson said in a statement released after the speech. “This will preserve financial stability, promote investor confidence and limit taxpayer exposure.”

Meanwhile, a House bill written by Financial Services Committee Chairman Jeb Hensarling (R-Texas) would dismantle Fannie and Freddie without providing a replacement. No Democrats are backing the bill.


  • by Concerned Originator | 8/7/2013 7:32:15 AM

    So it sound to me that he is steering the public to government backed mortgages such as FHA? Is this a coincidence, now that FHA No Longer drops monthly MI at 78% LTV?? Has anyone looked at the APR NOW on FHA Mortgages, it is really high when you include that monthly MI in for the life of the mortgage.

  • by Elaine R | 8/7/2013 10:00:56 AM

    He wants to install a "mortgage insurer insulated from financial reverses". On what planet is this guy coming from??? There are no such guarantees. Pathetic idea.

  • by Larry in NJ | 8/7/2013 10:09:12 AM

    I believe the proposed legislation that would replace FNMA & FHLMC with a 'new and improved' entity does not solve a problem, rather, it replaces one with another that could be even more damaging to the housing industry than the system in place for over forty years. The GSE's fell victim to government intervention in prudent underwriting guidelines, management selection through political appointment and social engineering mandates. These factors along with a the imposition of the 'due on sale' clause created financial instruments that pleased the secondary market but left home owners without the ability to sell into a falling market, underwater and with no escape other than default and it's consequences, thus shrinking the size of the home buying market together with values into the vortex of a spiraling collapse. To require the proposed investment removes capital from the markets and limits the players to those long on liquidity. This would curtail competition, increase costs and leave home purchasers with only those mortgage products that the 'new and improved' agency would consider acceptable based upon goals set by politicians with little or no understanding of the industry.


Should CFPB have more supervision over credit agencies?