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POLITICS: White House

Calls intensify for President Obama to break ties with Fannie Mae, Freddie Mac

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Photo - WASHINGTON, DC - NOVEMBER 09:  Fannie Mae's headquarters in the nation's capital are seen November 9, 2011 in Washington, DC. Citing the rise in defaults on loans it has guranteed, the government-controlled mortgage giant is asking the federal government for $7.8 billion in aid to covers its losses in the in the third quarter of FY 2011. Fannie has received $112.6 billion so far from the Treasury Department - the most expensive bailout of a single company.  (Photo by Chip Somodevilla/Getty Images)
WASHINGTON, DC - NOVEMBER 09: Fannie Mae's headquarters in the nation's capital are seen November 9, 2011 in Washington, DC. Citing the rise in defaults on loans it has guranteed, the government-controlled mortgage giant is asking the federal government for $7.8 billion in aid to covers its losses in the in the third quarter of FY 2011. Fannie has received $112.6 billion so far from the Treasury Department - the most expensive bailout of a single company. (Photo by Chip Somodevilla/Getty Images)
Politics,White House,Brian Hughes,Politics Digest

President Obama is facing increased pressure to eliminate the government-backed mortgage titans Fannie Mae and Freddie Mac after months of very limited progress by the White House to loosen the failed mortgage giants' grip on the rebounding real estate market.

Five years after the housing market crashed, Obama has focused primarily on helping homeowners who are underwater on their mortgages get refinancing. But that effort has required even greater government reliance on Fannie and Freddie without making any substantial push to create a new home-financing system that's influenced more by the private sector. Since being taken over by the federal government, Fannie and Freddie have cost taxpayers $137 billion.

"There has never been any White House leadership on this," said David John, a senior research fellow in retirement security and financial institutions at the Heritage Foundation. "Fannie Mae and Freddie Mac have outlived their usefulness. The real hesitation to do too much while housing was very weak -- that ceases to be an excuse."

In his State of the Union address, Obama touted a "healing" housing market, but Fannie, Freddie and other federal agencies are now responsible for 90 percent of all new housing loans. The administration floated the idea of eliminating Fannie and Freddie in a paper released a year ago, but the suggestion was put on the back burner ahead of the presidential election.

In recent weeks, Treasury Secretary Timothy Geithner hinted at such reforms but added, "We don't expect to legislate this year."

A new report released Monday by the Bipartisan Policy Center said Obama and Congress could ill afford to ignore broader housing reforms. The group called for the elimination of Fannie and Freddie and increased involvement from private interests, saying the current arrangement "failed and should not be repeated." The report was authored by former Democratic Sen. George Mitchell, former Republican Sens. Mel Martinez and Kit Bond and Henry Cisneros, President Clinton's Housing and Urban Development secretary.

"Greater federal intervention was necessary when the market collapsed but the dominant position currently held by the government is unsustainable," the report concluded. "Reducing the government footprint and encouraging greater participation by risk-bearing private capital will protect taxpayers while providing for a greater diversity of funding sources."

Under the proposal, a "public guarantor" would oversee the issuance of mortgage-backed securities by private companies and banks. The public guarantor would only be used if private insurance failed and would be funded by a federal insurance pool established from fees on the mortgage-backed securities.

The White House plan released a year ago called for scaling back Fannie and Freddie over five to 10 years, with options ranging from some government guarantees of mortgages to none at all. Such a call was missing from the president's State of the Union address -- and some say that with Obama focused on fiscal battles, gun control and immigration, he'll be hard-pressed to move the needle on the housing finance system.

Without White House action, however, housing policy could undermine Obama's attempts to jump-start the economy, some experts said.

"We have seen a fairly long series of programs over the last few years that have promised much more than they delivered," John said. "They're not an answer to the problem."

bhughes@washingtonexaminer.com

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Brian Hughes

White House Correspondent
The Washington Examiner