President Obama will call for a pullback in Washington's mortgage-backstop role as he touts the U.S. housing recovery in Phoenix Tuesday, the White House said.
Obama will tell a high school audience a limited government guarantee is needed to preserve access to the long-term, fixed-rate loans that underpin the U.S. housing market. But he also will call for a replacement of government-owned Fannie Mae and Freddie Mac with a bigger private-sector presence, the White House said in a statement Monday night.
Fannie and Freddie -- officially the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. -- took on risks that benefited private shareholders during good times and saddled taxpayers with losses when the housing market crashed in 2008.
Fannie and Freddie -- institutions that guarantee home loans for millions of middle-class families -- got a $188 billion taxpayer bailout to help weather losses.
Obama's plan would "end Fannie Mae and Freddie Mac's failed business model so taxpayers are never again on the hook for bad loans and bailouts," the White House statement said.
The Obama plan would wind down Fannie Mae and Freddie Mac's investment portfolios by at least 15 percent a year, the White House said.
"We need a rock-solid foundation for financing home ownership with a bigger role for the private sector, where taxpayers aren't on the hook for the irresponsible behavior or bad decisions of financial institutions and we finally put an end to an era where Fannie Mae and Freddie Mac could expect a bailout for risky behavior in pursuit of profits," the White House statement said.
Obama will propose the plan Tuesday after touring a suburban Phoenix construction company that employs 580 people full time, up from fewer than 100 during the depths of the 2008 housing-market collapse and subprime mortgage crisis, the White House said in a separate statement Monday evening.
After that 12:10 p.m. PDT tour, Obama will visit a Phoenix high school and lay out his multi-pronged proposal, the White House said.
Obama is expected to frame his proposal in terms of strengthening the housing market and the middle class.
"[The] strengthening of the housing market is of vital importance to the strengthening of the middle class," White House spokesman Jay Carney told reporters Monday. "And that's why the president has chosen to focus on housing as one of the cornerstones of his economic agenda."
Obama has been making speeches in several cities to highlight his plans to help the nation's struggling economic recovery. He is emphasizing jobs and middle-class economic stability while Republicans express concerns over domestic spending and budget deficits.
Obama's 1:05 p.m. gymnasium address to roughly 1,000 members of the Desert Vista High School senior class -- a day after their first day of the new school year -- comes 4 1/2 years after the president told another Phoenix-area high school Fannie Mae and Freddie Mac would "make it possible for an estimated 4 [million] to 5 million currently ineligible homeowners ... to refinance their mortgages at a lower rate."
He said his plan would remove a restriction so Fannie and Freddie could refinance mortgages they already own or guarantee. It would also provide $200 billion of additional financial backing to Fannie and Freddie.
"What this will do is it will allow millions of families stuck with loans at a higher rate to refinance," Obama told a Dobson High School audience in suburban Mesa Feb. 18, 2009.
"And the estimated cost to taxpayers would be roughly zero," he said. "While Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures."
Obama's address that day came one day after he signed into law the $787 billion American Recovery and Reinvestment Act, or stimulus plan.
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