WASHINGTON — In another sign that the housing market has strengthened, President Obama on Tuesday will outline his long-awaited ideas for overhauling the mortgage finance giants Fannie Mae and Freddie Mac to significantly reduce the government’s risk in any future credit crisis.
In an appearance in Phoenix, Mr. Obama will endorse bipartisan efforts in the Senate to wind down the two companies and end their longtime implicit guarantee of a federal government bailout. That dread prospect, once thought improbable, was realized in the fall 2008 financial crisis; Fannie Mae and Freddie Mac, then bankrupt, were made conservators of the government at great cost to taxpayers, who only now are being repaid.
The president, according to administration officials, will make clear that he will only sign into law a measure that puts private investors primarily at risk for the two companies, which buy and guarantee many mortgages from banks to provide a continuing stream of money for lenders to provide to additional home buyers.
An acceptable measure also must specify the government’s role and liabilities for Fannie Mae and Freddie Mac, the officials said, and — unlike legislation in the Republican-controlled House — must ensure Americans’ continued access to a 30-year mortgage at a fixed interest rate.
House Republicans would let the market determine whether to provide the long-standard mortgages, but the White House and the bipartisan Senate groups say that would make a 30-year, fixed-rate mortgage harder to get and more costly.
After years in which the formerly formidable Fannie Mae and Freddie Mac and their Congressional allies blocked proposals for payment of fees or risk premiums, Mr. Obama is calling for financial institutions to pay an assessment to the government on the value of mortgage-backed securities. Under his proposals, the revenue would help finance assistance for borrowers and subsidize construction of homes and rental properties that would be affordable to lower-income Americans.
Since his first year in office, Mr. Obama has been under pressure to propose legislation to remake or break up Fannie Mae and Freddie Mac, but the administration delayed those efforts while the housing market remained weak. By his advocacy now, aides say, Mr. Obama is putting his thumb on the scale for bipartisan efforts in the Senate Banking Committee over the legislation taking shape in the House that he does not support.
“The current housing finance system, where the government guarantees more than 80 percent of all mortgages through Fannie Mae and Freddie Mac and F.H.A., is unsustainable,” said a senior administration official, who declined to be identified speaking in advance of the president’s appearance.
In choosing Phoenix, Mr. Obama returns to a city that has come to symbolize for him the depths of the housing bust and now its apparent recovery. Weeks after taking office in 2009, Mr. Obama went to Phoenix to offer initial housing proposals for addressing “a crisis unlike we’ve ever known,” one “that strikes at the heart of the middle class.” More than four years later, in Phoenix as in much of the country, home sales and values are up sharply from their nadir, and foreclosures are down.
“We’re returning both because there has been significant progress in rebuilding the housing market in Phoenix and around the country more broadly, but also because there remains more work to do,” said a second senior administration official who also would only speak on grounds of anonymity.
The Obama administration’s initial housing measures did not achieve nearly the results predicted in the early years, in part because of financial institutions’ refusal or slowness to modify troubled mortgages. Several times the housing programs were modified, but even some supporters say Mr. Obama still has not done enough to relieve Americans who lost their homes as values plummeted or who kept their residences but owe more on their mortgages than their homes are worth. Republicans, however, have opposed what they consider government bailouts.
Nonetheless, Mr. Obama once again will call on Congress to approve measures he proposed in 2012 to allow more homeowners who are underwater – those who owe more than their houses are worth – to be able to refinance while mortgage interest rates remain relatively low, including homeowners who do not have mortgages backed by Fannie Mae, Freddie Mac or the Federal Housing Administration. And he will draw attention to existing programs that have helped Phoenix and other places hard-hit by the housing crisis.
While Mr. Obama mainly is addressing homeownership, he will promote affordable rental housing more than in the past. That reflects a broader shift in thinking after years in which the government promoted the so-called American dream of homeownership.
For some analysts, the crisis suggested that many Americans could not bear the burdens of homeownership, but were pushed by banks and government policies into mortgages. Advocates of affordable housing have called for a “rebalance” of government efforts, which they say have too long been skewed toward homeownership.
“It’s refreshing to see the president acknowledge the importance of rental housing policy, too,” said Douglas Rice, an analyst at the left-leaning Center on Budget and Policy Priorities. While more than one-third of American households are renters, he said, three-quarters of federal housing assistance benefits homeowners, especially through tax breaks, and more than half of the benefits go to households with incomes above $100,000.