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.

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