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In his speech at the end of last month outlining efforts to bolster the middle class, President Obama identified home ownership as one of the "cornerstones" of that status. Today, he travels to Arizona to flesh out his proposals to facilitate home buying and limit the government's risk in doing so — including by supporting a phase-out government-sponsored mortgage lenders Fannie Mae and Freddie Mac.

For those who don't own homes or pay close attention to Washington politics, a refresher. Fannie Mae is officially known as the Federal National Mortgage Association; Freddie Mac, the Federal Home Loan Mortgage Corporation. In their own words, the two "support stable funding for the housing and mortgage markets and expand opportunities for home ownership and affordable rental housing." That's overly simple, of course. They're actually insurers. Over the decades of their existence, the two evolved to provide a massive secondary market for mortgage lending that allowed mortgage providers to pay a fee to ensure that a default would be covered. In other words, as private entities backed by the government, the two organizations helped keep interest rates low for homeowners by insuring their mortgages.

The problem that arose during the 2008 financial crisis — or, more accurately, in the years leading up to that crisis — was that the value of the mortgages in those securities dropped as huge numbers of people stopped being able to pay their mortgages. The two companies went into deep debt, and were taken over by the government in the final months of the Bush administration. Since, they've begun repaying the government's investment, but the scale of that investment is so large doing so would take an enormous amount of time.

The recession revealed a weakness in the system that is at the core of what the president plans to address today. When times were good, the two organizations made it easier for private investors to make money. When things went south, the organizations — and then the government — were the ones that largely incurred the cost.

Obama's trick is finding a balance. He first introduced the idea of reforming the two in 2011, as the Wall Street Journal notes, but renewed his calls for change in that speech last month.

The key now is to encourage homeownership that isn’t based on bubbles, but is instead based on a solid foundation, where buyers and lenders play by the same set of rules, rules that are clear, transparent, and fair. … [W]e’ll work with both parties to turn the page on Fannie and Freddie, and build a housing finance system that’s rock-solid for future generations.

According to administration officials, the president will likely not offer detailed specifics on how that will work. Instead, he'll offer an outline, as The Times reports, endorsing a policy that has received bipartisan support in the Senate. As always, the Republican House offers a stumbling block.

The president, according to administration officials, will make clear that he will only sign into law a measure that puts private investors primarily at risk for the two companies, which buy and guarantee many mortgages from banks to provide a continuing stream of money for lenders to provide to additional home buyers.

An acceptable measure also must specify the government’s role and liabilities for Fannie Mae and Freddie Mac, the officials said, and — unlike legislation in the Republican-controlled House — must ensure Americans’ continued access to a 30-year mortgage at a fixed interest rate.

In short, Obama wants to shift the risk of lending back onto the private sector, while ensuring that home buyers can get the sort of long-term loan that can keep interest rates low. The Journal adds that Obama will also "call for Fannie and Freddie's investment portfolios to be wound down by at least 15 percent per year." Since the financial crisis, the obligations of the two have increased to comprise 90 percent of new financing for the purchase of a home.

For those middle class homebuyers for whom the president says he is advocating, the significance of the location of his speech may mean more than its contents. The city's housing sector has rebounded strongly since a 2009 Obama speech outlining government efforts to bolster those at risk of losing their homes — a policy that elsewhere saw limited success and strong resistance from lenders. Which is all the middle class actually cares about: buying — or keeping — an affordable house. Everything else is just politics.

This article is from the archive of our partner The Wire.

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