PHOENIX President Obama called on Congress to speed elimination of Fannie Mae and Freddie Mac yesterday, issuing his strong support for some kind of government backstop in the secondary mortgage market a critical priority for credit unions.
But the president said during a speech here secondary market reform must include a level of privatization, so the government will step in to pay mortgage guarantees only after private capital has been exhausted. He said private capital must bear the substantial majority of any losses. The president also called for Fannie’s and Freddie’s investment portfolios to be wound down by at least 15% per year, and the guarantees for maintenance of the traditional 30-year mortgage in any reform scheme.
President Obama argued the government only should assume responsibility for mortgages as a last resort. “We can’t leave taxpayers on the hook for irresponsibility or bad decisions by these lenders or Fannie Mae and Freddie Mac,” he said. “We’ve got to encourage the pursuit of profit but the era of expecting a bailout after you pursue your profit and you don’t manage your risk well it puts the whole country at risk. We’re ending those days. We’re not going to do that anymore.”
The president’s remarks come as both the House and Senate are pursuing reform measures that would eliminate Fannie and Freddie, which currently buy 90% of all single family mortgages sold on the secondary market by credit unions and banks. The main difference in the two proposals is the Senate would retain some kind of government backstop, while the House’s would not.
The continued role of the government in the secondary mortgage market is a key priority for credit unions and community banks, which worry a completely privatized market would leave them at the mercy of banking giants.
Fannie and Freddie were nationalized in September 2008 at the height of the mortgage crisis and have racked up almost $190 billion in government bailout funds.
