President Barack Obama, speaking to an audience in Phoenix yesterday, tied his proposal reforming the U.S. housing system to both his on-going theme of shoring up the middle class and to immigration reform. Among his specific proposals were the gradual elimination of Fannie Mae and Freddie Mac and the need to insure the availability of decent and affordable rental housing.
Calling owning a home "the ultimate evidence that here in America, hard work pays off, that responsibility is rewarded," he pointed to the difference between when his grandfather was able to buy his first home with an FHA loan and the events leading up to the recent crisis. "In that earlier generation, houses weren't for flipping around, they weren't for speculation -- houses were to live in, and to build a life with." But unfortunately, he said, responsibility gave way to recklessness - and triggered a recession.
The President enumerated some of the steps that the government has already taken to reverse the decline in housing and some of the recent signs of recovery, emphasizing that housing isn't just important for the person who owns the house - it impacts the entire economy "Construction workers, contractors, suppliers, carpet makers, all these folks are impacted by the housing industry."
We've made progress, he said, but we've got to build on this progress and "turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place. We've got to build a housing system that is durable and fair and rewards responsibility for generations to come".
There are, he said, five immediate steps that must be taken:
Congress should pass a bill giving every homeowner the chance to save thousands of dollars a year by refinancing their mortgage at today's rates.
We've made it harder for reckless buyers to buy homes that they can't afford now we must make it easier for qualified buyers to buy ones they can afford by simplifying overlapping regulations, cutting red tape, and giving persons who have worked hard to repair their credit a second chance.
We must fix our broken immigration system because when more people can buy homes and play by the rules, home values go up for everybody. One recent study showed the average homeowner has already seen the value of their home boosted by thousands of dollars because of immigration.
Rebuild the communities hardest hit by the housing crash; putting construction workers back to work repairing rundown homes, tearing down vacant properties so that the value of homes in those surrounding areas start picking up.
Make sure families that can't or don't want to buy a home still have a decent place to rent. Instead of making everyone feel like they must own a home, even if they weren't ready let's invest in affordable rental housing. Let's bring together cities and states to address local barriers that drive up rents for working families.
As home prices rise, we don't want another bubble, he said, we want something stable and steady. 'And that's why I want to lay a rock-solid foundation to make sure the kind of crisis we went through never happens again." To that end, he said, we must wind down Fannie Mae and Freddie Mac, the two companies that are not really government but not really private sector. "For too long, these companies were allowed to make huge 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." "It helped to inflate this bubble in a way that ultimately killed Main Street."
He said a bipartisan group of senators is working to end these two companies (referring to the Corker-Warner bill), "And they're following four core principles for what I believe this reform should look like. "
First, private capital should take a bigger role in the mortgage market. There should be a limited government role and private lending should be the backbone of the housing market including community-based lenders "who view their borrowers not as a number, but as a neighbor."
Second, we can't leave taxpayers on the hook for irresponsibility or bad decisions by some of these lenders or Fannie Mae or Freddie Mac. "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 -- well, that puts the whole country at risk. We're not going to do that anymore."
The third principle is to preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage.
Fourth, we've got to keep housing affordable for first-time homebuyers. And that means we've got to strengthen the FHA so it gives today's families a chance to buy a home, and it preserves those rungs on the ladder of opportunity.
And we've got to support affordable rental housing and we've also got to keep up our fight against homelessness.
The president also called on Congress to immediately allow an up-or-down vote on the confirmation of James Watt, his nominee to head the Federal Housing Finance Agency (FHFA) and gave a strong endorsement to the work being done to protect homeowners by the Consumer Financial Protection Bureau.
The President concluded, "Put all these principles together, that's going to protect our entire economy and it will improve the housing market not just here in Phoenix, but throughout the state and throughout the country. We'll make owning a home a symbol of responsibility, not speculation -- a source of security for generations to come, just like it was for my grandparents."
Reaction received by MND to the President's speech has thus far been supportive. Rick Judson, chairman of the National Association of Home Builders (NAHB) said his organization applauded the President for "affirming the importance of maintaining a a federal backstop as part of efforts to revamp the housing finance system and protect the 30-year mortgage." Judson said NHAB also supports strengthening the FHA to facilitate the flow of mortgage credit to qualified home buyers, cutting red tape and easing tight credit conditions that are preventing creditworthy borrowers from obtaining home loans."
Mortgage Bankers Association (MBA) President and CEO David H. Stevens said the President's insistence on transitioning the mortgage market toward relying on private capital was of particular importance as is his apparent willingness to adopt a common securitization platform and risk-share options. Both of these, Stevens said, are key components of what MBA believes should be part of reforming the secondary mortgage market and both can be implemented now without legislation.
A statement from The Center for Responsible Lending (CRL) said, "Next steps toward a full recovery? Confirm Mel Watt to lead the Federal Housing Finance Agency, and then give the common-sense Qualified Mortgage (QM) rules time to work, and institute Qualified Residential Mortgage rules that mirror QM rules."
CRL stressed that "any entity that replaces Fannie Mae and Freddie Mac must include an explicit and paid-for government guarantee and a duty to serve the entire market. The new system must ensure that all Americans have fair access to safe and affordable 30-year fixed rate mortgage credit."