President Obama on Home Ownership
On 8/6/2013, President Obama traveled to Phoenix, Arizona to speak on responsible home ownership at Desert View High School in the well-to-do neighborhood of Awahtukee.
In this talk the President outlines five steps for helping Americans achieve the dream of home ownership.
Those five steps, however, aren’t the importance of this speech.
The importance of this speech is something quite different.
A Strong Middle Class
The Phoenix pitch is one in a blitzkrieg of frequent flier monologues about the economy. Housing is the second of Obama’s six cornerstones for “building a better bargain for the middle class“.
Putting Phoenix into context, the nationwide speech blitzkrieg started when the President defined six “Cornerstones of a Strong Middle Class” in a rambling, hour-long talk on the economy at Knox College in Galesburg, IL on 7/24/2013.
The cornerstones are:
- Home ownership
- Secure retirement
- Health care
- Ladders of opportunity
The President then spoke on:
- Education funding in Warrensburg. MO – 7/24/2013)
- Jobs and infrastructure at the Jacksonville, FL shipyards – 7/25/2013
- Middle class job growth in a sprawling Chattanooga, TN Amazon distribution center – 7/30/2013
Home ownership is the second of the six cornerstones.
We have secure retirement, health care and ladders of opportunity speeches still ahead.
Five Steps to Home Ownership
In this latest speech, the President proposes:
- Congress pass a bill to ease refinancing existing homes
- Use FHA to make buying new homes easier
- Fix immigration
- Address uneven housing recovery
- Create affordable opportunities for renters
Except #2, these proposals boil down more to political rhetoric than an actionable plan.
The Meat and Potatoes
Our housing system should operate where there’s a limited government role and private lending should be the backbone of the housing market
One of the key things to make sure it (a housing bubble) 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
– President Obama, Phoenix Arizona, 8/6/2013
There has been talk of eliminating Fannie and Freddie for years. This is the first time the President has proposed shutting them down as opposed to reforming them.
Few Americans understand that excessive loan approvals to unqualified home buyers was the core of the housing bubble that caused the Great Recession. In 2007, if you could breath you got approval for a home mortgage. Fannie Mae and Freddie Mac approved those loans. They are government sponsored enterprises.
Fannie and Freddie cost U.S. taxpayers $100s of billions and have barely started paying any of it back.
Fannie and Freddie approval practices overinflated home values. They helped invent the financial mechanisms that facilitated Wall Street excesses which, in turn, brought down the economy.
$7 trillion in mortgage value evaporated faster than boiling water in Death Valley summer. Millions of homeowners are still suffering that loss today.
At the same time President Obama proposes shutting down Fannie and Freddie he also proposes strengthening FHA to make homes “affordable for first-time homebuyers”.
Why exchange one monster for another?
Given the Fannie and Freddie experience, his thought is the economic equivalent of throwing fuel oil instead of high octane gasoline on a burning house. In both cases the house still burns to the ground and taxpayers get left stuck with the bill.
On a speech banner is proclaimed, “A HOME TO CALL YOUR OWN”.
A scary thought is that, with Congress’s help, the President will achieve that goal, approve more unqualified buyers and build the next housing bubble that torches the economy again.