President Barack Obama said private capital must take the lead role in the nation’s mortgage market with the U.S. government continuing to provide a backstop only against catastrophic risk.
In a speech today in Phoenix, the president for the first time endorsed an approach to remake the housing finance system as Fannie Mae (FNMA) and Freddie Mac (FMCC) are wound down. He said the government still must play a role to preserve broad access to 30-year, fixed-rate mortgages that underpin the housing market.
“I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market,” Obama said, according to the text of the address he delivered in Phoenix, one of the cities hardest hit by falling home prices and waves of foreclosures after the collapse of credit markets in 2008.
Obama’s call for a government mortgage reinsurer comes as administration officials have been quietly aiding efforts in the Senate to craft a bill that would create a new mortgage system. Tennessee Republican Bob Corker and Virginia Democrat Mark Warner in June introduced the measure, which would require private capital to take at least 10 percent of the first losses on mortgage securities. The government would step in with more aid during a financial catastrophe.
As he has in the past, Obama blamed “recklessness” on the part of lenders and borrowers for the housing bubble and subsequent collapse of the market as the nation fell into the deepest recession since the 1930s. Now, he said, the market is healing, with prices rising and foreclosures declining.