Obama may shut down Fannie Mae, Freddie Mac

WASHINGTON -- President Barack Obama is proposing to overhaul the nation's mortgage finance system, including shutting down government-backed Fannie Mae and Freddie Mac -- a plan with bipartisan support on Capitol Hill.

Obama will also insist popular 30-year mortgages be widely available to borrowers, even in a system that would rely more on the private sector than the government to guarantee loans.

The president outlined his proposals Tuesday at a construction company in Phoenix, once the epicenter of the housing crisis following the 2008 economic collapse. The housing market in the region, as in much of the country, has rebounded in recent months, buoyed in part by low interest rates.

President Obama

The president's trip marks the latest stop on his summertime economic tour aimed at refocusing his agenda on middle-class Americans still struggling to recover from the recession. The collapse of the housing market in particular had a dramatic effect on people's lives and the economic viability of communities nationwide.

"So many Americans across the country view their own economic and financial circumstances through their homes and whether they own a home, whether their home is underwater, whether they feel like they have equity in their homes," White House spokesman Jay Carney said Monday.

Senior administration officials said Obama would focus in Phoenix on shifting more of the burden for supporting the nation's massive mortgage market to the private sector. A centerpiece of that effort is winding down Fannie Mae and Freddie Mac, the mortgage finance operations that received a $187 billion taxpayer-funded bailout in 2008.

The White House has previously lauded efforts to achieve that goal led by Sen. Bob Corker, R-Tenn., and Sen. Mark Warner, D-Va. While Obama will outline his own proposals Tuesday, his plans are largely in line with the Senate overhaul.

"He's encouraged by the bipartisan progress we've seen on Capitol Hill," Housing and Urban Development Secretary Shaun Donovan told reporters traveling with Obama aboard Air Force One. He said that like the immigration overhaul Congress is pursuing, Obama doesn't expect to agree on every detail.

Obama's plan would phase out Fannie and Freddie, replacing them with a system that relies on the private sector to buy mortgages from lenders. Officials said the government would step in to pay out mortgage guarantees only after private capital has been exhausted and said private capital would bear the substantial majority of any losses.

Built into that system would be a guarantee that 30-year mortgages would still be available. Officials said that would involve some type of government guarantee for lenders, though they did not detail what that would entail.

Obama's advisers did not outline a specific time frame for winding down Fannie and Freddie. The Corker-Warner legislation would shutter the operations within five years.

Fannie and Freddie don't make loans directly, but buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. The enterprises own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones.