If you listened to President Obama in Phoenix the other day you may have been as perplexed as I was when he mentioned Fannie and Freddie. And if you read the transcript of the speech you may be even more confused:
“We put in place tough rules on Wall Street and we created a Consumer Financial Protection Bureau, and we’re really policing irresponsible lenders luring folks into buying stuff they can’t afford. And we designed a mortgage form that’s written in simple language so that people understand what the commitments are when you buy a home. We’re cracking down on some of the worst practices that led to the housing crisis. We’re going to protect middle-class families from getting ripped off. And that’s why we had the Justice Department fight for buyers who were discriminated against or preyed upon, and we won a settlement that awarded more money to victims in one year than in the previous 23 years combined. That’s why we worked with states to force big banks to repay more than $50 billion to more than 1.5 million borrowers who had been treated wrongly — and that was the largest lending settlement in history. And that’s why I’ve called on Congress to wind down the government-backed companies known as Fannie Mae and Freddie Mac.”
The flow of the speech made it seem that he “called on Congress to wind down…Fannie and Freddie” because “borrowers were treated wrongly…by big banks.” It did not make sense.
However, after reading several past SOTU speeches, I realized that it is either his speechwriter’s style of writing or the President’s preferred style of speaking that causes the confusion.
If you read the same speech from Phoenix with a slightly different perspective, it actually makes more sense:
“We put in place tough rules on Wall Street
- and we created a Consumer Financial Protection Bureau,
- and we’re really policing irresponsible lenders luring folks into buying stuff they can’t afford.
- And we designed a mortgage form that’s written in simple language so that people understand what the commitments are when you buy a home.
We’re cracking down on some of the worst practices that led to the housing crisis. We’re going to protect middle-class families from getting ripped off.
- And that’s why we had the Justice Department fight for buyers who were discriminated against or preyed upon, and we won a settlement that awarded more money to victims in one year than in the previous 23 years combined.
- That’s why we worked with states to force big banks to repay more than $50 billion to more than 1.5 million borrowers who had been treated wrongly — and that was the largest lending settlement in history.
- And that’s why I’ve called on Congress to wind down the government-backed companies known as Fannie Mae and Freddie Mac.”
So, he said, “We’re cracking down on some of the worst practices that led to the housing crisis. We’re going to protect middle-class families from getting ripped off. …And that’s why I’ve called on Congress to wind down the government-backed companies known as Fannie Mae and Freddie Mac.”
The speech in Phoenix represents the Administration’s status quo position on Fan and Fred.
It is clear that the administration is acting to implement reform from an Executive Order-style approach, without actually issuing the Order. Acting Director DeMarco and Secretary Gaithner implemented the de facto Executive Order. Director Watt and Secretary Lew continue to reform Fannie and Freddie by implementing numerous changes, namely moving to substantially shrink the size of the companies.
While President Obama calls for Congress to reform, his administration is quietly acting alone by already implementing their desired reforms.
President Obama recently initiated the same action with Immigration, though more overt and transparent with the effort.
Donald Leyton, CEO of Freddie Mac, confirms these actions by stating, “This development is all part of non-legislative reform intended to improve mortgage financing. However, this is not as noticed largely because media does not cover it as an umbrella subject. Legislative reform would take much longer. …while it’s “hard to predict politics,” any reform once passed would be at least several years before beginning implementation.”
President Obama’s Administration will be gone in a few years, so strike while the iron is hot, right!? We’ll see if any judge in any of the numerous lawsuits has an opinion about this Executive Order-style reform. Or will we see settlements before it gets that far?
The following is the result of my research on President Obama’s past State of the Union addresses as they pertain to housing and the financial crisis. The next SOTU address is ten days from now on January 20th.
“And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.”
“Our housing market is healing, our stock market is rebounding, and consumers, patients, and homeowners enjoy stronger protections than ever before…
…And part of our rebuilding effort must also involve our housing sector. The good news is our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years. Home purchases are up nearly 50 percent, and construction is expanding again.
But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who never missed a payment and want to refinance are being told no. That’s holding our entire economy back. We need to fix it.
Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before, so what are we waiting for? Take a vote, and send me that bill. Why would we be against that? Why would that be a partisan issue, helping folks refinance? Right now, overlapping regulations keep responsible young families from buying their first home. What’s holding us back? Let’s streamline the process, and help our economy grow.”
“In 2008, the house of cards collapsed. We learned that mortgages had been sold to people who couldn’t afford or understand them. Banks had made huge bets and bonuses with other people’s money. Regulators had looked the other way, or didn’t have the authority to stop the bad behavior. It was wrong. It was irresponsible. And it plunged our economy into a crisis that put millions out of work, saddled us with more debt, and left innocent, hardworking Americans holding the bag. In the six months before I took office, we lost nearly 4 million jobs. And we lost another 4 million before our policies were in full effect.
Those are the facts. But so are these: In the last 22 months, businesses have created more than 3 million jobs.
…And we’ve put in place new rules to hold Wall Street accountable, so a crisis like this never happens again.
…So were millions of innocent Americans who’ve seen their home values decline. And while government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief.
And that’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.
Let’s never forget: Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same. It’s time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.
We’ve all paid the price for lenders who sold mortgages to people who couldn’t afford them, and buyers who knew they couldn’t afford them. That’s why we need smart regulations to prevent irresponsible behavior. Rules to prevent financial frau…these don’t destroy the free market. They make the free market work better.
And I will not go back to the days when Wall Street was allowed to play by its own set of rules.
So if you are a big bank or financial institution, you’re no longer allowed to make risky bets with your customers’ deposits. You’re required to write out a “living will” that details exactly how you’ll pay the bills if you fail –- because the rest of us are not bailing you out ever again. And if you’re a mortgage lender or a payday lender or a credit card company, the days of signing people up for products they can’t afford with confusing forms and deceptive practices — those days are over. Today, American consumers finally have a watchdog in Richard Cordray with one job: To look out for them.
We’ll also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments. Some financial firms violate major anti-fraud laws because there’s no real penalty for being a repeat offender. That’s bad for consumers, and it’s bad for the vast majority of bankers and financial service professionals who do the right thing. So pass legislation that makes the penalties for fraud count.
And tonight, I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorney general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
“There are at least five different agencies that deal with housing policy.
To reduce barriers to growth and investment, I’ve ordered a review of government regulations. When we find rules that put an unnecessary burden on businesses, we will fix them. But I will not hesitate to create or enforce common-sense safeguards to protect the American people. …It’s why last year, we put in place consumer protections against hidden fees and penalties by credit card companies and new rules to prevent another financial crisis.
We are living with a legacy of deficit spending that began almost a decade ago. And in the wake of the financial crisis, some of that was necessary to keep credit flowing, save jobs, and put money in people’s pockets.”
“Our most urgent task upon taking office was to shore up the same banks that helped cause this crisis. It was not easy to do. And if there’s one thing that has unified Democrats and Republicans, and everybody in between, it’s that we all hated the bank bailout. I hated it…I hated it. You hated it. It was about as popular as a root canal.
But when I ran for President, I promised I wouldn’t just do what was popular -– I would do what was necessary. And if we had allowed the meltdown of the financial system, unemployment might be double what it is today. More businesses would certainly have closed. More homes would have surely been lost.
So I supported the last administration’s efforts to create the financial rescue program. And when we took that program over, we made it more transparent and more accountable. And as a result, the markets are now stabilized, and we’ve recovered most of the money we spent on the banks. Most but not all.
To recover the rest, I’ve proposed a fee on the biggest banks. Now, I know Wall Street isn’t keen on this idea. But if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.”
“But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.
That is why this administration is moving swiftly and aggressively to break this destructive cycle, restore confidence, and re-start lending.
We will do so in several ways. First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.
Second, we have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and re-finance their mortgages. It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values – Americans who will now be able to take advantage of the lower interest rates that this plan has already helped bring about. In fact, the average family who re-finances today can save nearly $2000 per year on their mortgage.
Third, we will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.
I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions. But such an approach won’t solve the problem. And our goal is to quicken the day when we re-start lending to the American people and American business and end this crisis once and for all.
I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer. This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.
Still, this plan will require significant resources from the federal government – and yes, probably more than we’ve already set aside. But while the cost of action will be great, I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade. That would be worse for our deficit, worse for business, worse for you, and worse for the next generation. And I refuse to let that happen.
I understand that when the last administration asked this Congress to provide assistance for struggling banks, Democrats and Republicans alike were infuriated by the mismanagement and results that followed. So were the American taxpayers. So was I.
So I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you – I get it.
But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job – our job – is to solve the problem. Our job is to govern with a sense of responsibility. I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.
That’s what this is about. It’s not about helping banks – it’s about helping people. Because when credit is available again, that young family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they can get a loan too, maybe they’ll finally buy that car, or open their own business. Investors will return to the market, and American families will see their retirement secured once more. Slowly, but surely, confidence will return, and our economy will recover.
So I ask this Congress to join me in doing whatever proves necessary. Because we cannot consign our nation to an open-ended recession. And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system. It is time to put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes short-cuts and abuse.”