Wednesday, August 7, 2013
In a speech in Phoenix, President Obama outlined his vision for beleaguered mortgage giants Freddie Mac and Fannie Mae:
Fannie Mae and Freddie Mac do not make loans directly, but buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. The enterprises currently own or guarantee half of all US mortgages and back nearly 90% of new ones. [...]
Fannie and Freddie, as the two federally-created entities became known, were blamed for encouraging an era of reckless lending and were bailed out by the US government at a cost of $187bn.
Now the White House argues it is time to work with Congress to replace the system with more private guarantees. "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," said Obama. [...]
Obama is also seeking guarantees that a private sector-led mortgage finance system would still ensure wide homeowner access to popular 30-year mortgages at fixed rates.