Investing in the housing market’s recovery

President Obama officially threw his support behind a bipartisan push to replace beleaguered housing giants Fannie Mae and Freddie Mac during a speech to an Arizona crowd on Tuesday.

“As home prices rise, we can’t just re-inflate another housing bubble,” Obama admonished.  Rather, government should invest in the housing market’s recovery by working to “lay a rock-solid foundation to make sure the kind of crisis we went through never happens again. And one of the key things to make sure it doesn’t happen again is to wind down these companies that are not really government, but not really private sector; they’re known as Freddie Mac and Fannie Mae.”

Although Obama has previously called for and supported comprehensive housing finance reform, Tuesday was the first time the President endorsed a specific approach–a bipartisan bill introduced in June by Senators Bob Corker (R.-Tenn.) and Mark Warner (D.-Va.). 

Plan to phase out Fannie and Freddie

As we previously reported, Senators Corker and Warner’s bill would phase out Fannie Mae and Freddie Mac over five years and replace them with a new government agency modeled on the FDIC.  The agency would be funded by industry fees and play a much smaller role in guaranteeing mortgages.

In throwing his support behind the Corker/Warner bill, Obama indirectly rejected a Republican-sponsored bill passed by the House Financial Services Committee last month that would also shut down Fannie and Freddie, but not replace them with a new mechanism to guarantee the payment of 30-year fixed-rate mortgages.

Critics of the House Republican bill argue that the availability of 30-year fixed-rate mortgages–a cornerstone of home finance for middle-class homeowners–would decrease, while at the same time becoming more expensive under the proposed bill.