President Barack Obama announced his mortgage reform plan in a speech at Desert Vista High School in Phoenix, Arizona on August 6, 2013. The plan includes ending government run Fannie Mae and Freddie Mac’s role in mortgages and shifts the burden on the private sector to the banks. The stop in Arizona is the fifth in his summer economic tour highlighting his successes with the economy and promoting plans to help the middle class. This is the second plan the President unveiled on the tour, his first was his ‘grand bargain,’ tempting the Republicans with corporate tax cuts in exchange for funding a middle class jobs programs.
Arizona Gov. Jan Brewer met President Obama at Phoenix International Airport; this time it was lot less confrontational than last year, when Brewer famously wagged her finger at Obama, the discussion though out was of hearing range, still appeared tense and as if they were arguing. Obama began his Phoenix trip visiting Erickson Construction, a company that builds house frames, providing their products to three states. The company is also experiencing a boom, prompting them to raise their workforce from 100 employees during the recession up to 580 this year.
President Obama announced his mortgage finance overhaul plan in an address to 2,000 people at Desert Vista High School, the local high school on Tuesday afternoon. The president first discussed the economic successes of his administration, which has put the country on the road to recovery. He then touted the successes with the housing market saying; “Today, our housing market is healing. Home prices are rising at the fastest pace in 7 years. Sales are up nearly 50%. Construction is up nearly 75%. New foreclosures are down by nearly two-thirds.”
Obama’s plan is twofold, have Congress pass legislation to make it easier for homeowners to refinance their loans and for first time owners to obtain a mortgage, and to phase out and eliminate mortgage giants Fannie Mae and Freddie Mac. Obama laid out his policy stating; “Now we have to build on this progress. We give to more hard-working Americans the chance to buy their first home. We have to help more responsible homeowners refinance their mortgage. And above all, we have to turn the page on the bubble-and-bust mentality that created this mess, and build a housing system that’s durable and fair and rewards responsibility for generations to come.”
Obama speaking of ending the mortgage giants, stated; “For too long, these companies 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.” The government had to bail out the mortgage companies in 2008 with $200 billion after the housing bubble burst.
Right now the government guarantees a majority of the mortgages from the Federal Housing Authority and both Fannie Mae and Freddie Mac, a total of 80 percent of mortgages. Obama wants to curtail this he no longer wants the government to bail the two giants out, and support them with government and taxpayer funds. Obama stated; “No more leaving taxpayers on the hook for irresponsibility or bad decisions. We encourage the pursuit of profit – but the era of expecting a bailout after your pursuit of profit puts the whole country at risk is over.” He wants to replace Fannie Mae and Freddie Mac with banks issuing the brunt of mortgages.
Therefore the President is proposing a limited government involvement, banks will pay a fee to the government who will provide an insurance guarantee to banks if a mass housing bust happens again occurs, where the banks will received repayment covering the losses. Obama emphasized this in his speech; “I believe that while our housing system must have a limited government role, 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.”
Obama’s plan supports and is in agreement with the bipartisan Senate housing proposal sponsored by Republican Sen. Bob Corker (TN) and Democratic Sens. Tim Johnson (S.D.) in June that wants to end the mortgage companies within five years.
Obama also wants to ensure that the 30-year mortgages with fixed interest rates Fannie and Freddie offered will remain an option for home buyers, despite banks considering them a risk. The president said; “We should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage. That’s something families should be able to rely on when they make the most important purchase of their lives.”
President Obama included a push for immigration reform in his speech tying it to an increase for homeownership, stating; “It’s pretty simple: when more people buy homes, and play by the rules, home values go up for everybody. According to one recent study, the average homeowner has already seen the value of their home boosted by thousands of dollars, just because of immigration.”
Obama also advocated affordable rental housing in his proposal, which is necessary especially with home ownership being at its lowest in 18 years. The president said; “we should make sure families that don’t want to buy a home, or can’t yet afford to buy one, have a decent place to rent…. let’s invest in affordable rental housing. And let’s bring together cities and states to address local barriers that drive up rent for working families.”
Obama concluded his speech by laying out his economic vision for the middle class reiterating; “And if we follow the strategy I am laying out for our entire economy: for jobs, housing, education, healthcare, retirement, and climbing the ladders of opportunity, then I have no doubt we will secure that better bargain where hard work is once again rewarded with a shot at a middle-class life.” He also criticized Congress for not putting his vision into action.
The President then finished with a message he has been repeating throughout the economic tour; “And as long as I have the privilege of serving as your President, I’ll spend every minute of every day I have left in this office doing everything I can to build that better bargain for the middle class and make this country a place where everyone who works hard can get ahead.”
When President Obama last spoke in Phoenix about the economy in 2009, the city’s housing market was experiencing a rapid nose dive; he was introducing policies to slow down the foreclosures. Four years later the President decided to return to highlight the city’s recovery, where they are now experiencing a housing market success story rebounding from the one worse the situations in the whole country. In two years the city’s housing market recovered from a situation where single family house prices dropped 60 percent from 2006, and there were 70,000 foreclosures a year. Investors took advantage of the prices, followed by the middle class regular home owners who competed for the homes available. The new confidence led to rising prices and now home prices have risen 60 percent from the lowest point.
In 2006, at the height of the housing boom there, houses went for $260,000; at the lowest point in 2010 the average price of a home was $111,000, and now prices have leveled off and are at an average of $185,000, up 26 percent from last year. Obama wants to replicate the success Phoenix has experienced all over the country, so he chose to deliver his speech there.
Obama’s housing policy did not help that much, money promised was never allocated or used to help homeowners, and he has been criticized for not helping enough, with Congress still stalling on a number of initiatives from last year. While the housing market recovered partly from Obama’s policies, it is mostly from low interest rates. Rising interest rates now threaten to slow the recovery, making it necessary for Obama to release his own plan hoping he can get Congress to pass legislation supporting it.
The situation in Pheonix contrasts with the rest of the country where homeownership is at an 18-year low. In 2004, the height of home ownership the rate was 69.2 percent, it’s now at 65 percent, and will probably level off next year at 64 percent, the last time the rate was that low was 1995. The housing bust saw 7 million Americans losing their homes. However, now the housing market is rebounding, and property values are raising, Congress as is Obama are looking for a solution for mortgages. The situation in the rest of the country emphasizes why the President’s initiative is even more important, in order to help the middle-class obtain and retain home ownership.
White House Press Secretary Jay Carney stated at his daily press briefing on Monday why Obama is intending to the address the housing market during his tour. Carney said; “We are still not where we need to be, and there is still ample room to grow when it comes to providing more homeowners the assurances and capability to refinance their homes and to further stabilize and grow the housing market across the country.”
Since Wednesday, July 24, 2013, President Obama has embarked on a jobs and economic inequality tour that was launched at a Knox College speech that refocused his economic vision for the remainder of his term with an emphasis on jobs creation and improving the position of the middle class. His tour also took him to Florida and Missouri where he spoke the economy.
As part of his tour on July 30, Obama unveiled a plan in Chattanooga, TN, trying to persuade the Republicans to agree with it in order to avoid a budget showdown this fall. Obama’s “grand bargain” proposed lower corporate taxes in exchange for the Republicans supporting a middle class job creation program which would include an increase funding for infrastructure projects around the country, programs to boost manufacturing and training programs. The plan was the first concrete proposal Obama announced since beginning his economic tour.
President Obama will be continuing for the rest of the summer his economic tour unveiling each time his proposal for different areas that will help the middle class grow, proposer and live the American dream.
President Barack Obama’s Remarks on Responsible Homeownership, August 6, 2013
Bonnie K. Goodman is the Editor of the Academic Buzz Network, a series of political, academic & education blogs which includes History Musings: History, News & Politics. She has a BA in History & Art History & a Masters in Library and Information Studies, both from McGill University, and has done graduate work in Jewish history at Concordia University as part of the MA in Judaic Studies program. Her specializations are US, Canadian & Israeli politics.