Fox Business host Stuart Varney falsely claimed that policies outlined in President Obama's housing speech will inflate a new housing bubble by "coercing" private banks to provide low interest rates and easy money to unfit borrowers, ultimately setting the stage for another financial collapse.
On the August 7 edition of Fox News' America's Newsroom, Varney argued that the president's call to wind down government involvement in Fannie Mae and Freddie Mac, perhaps dissolving the two mortgage giants altogether, was in fact a ploy to over-regulate private industry. According to Varney, Obama eventually planned to force other banks to lend to the "poor credit borrowers" currently served by Fannie and Freddie. Varney and Fox host Heather Childers agreed that it was a policy of lending to so-called "poor credit borrowers" that caused the financial collapse more than five years ago. They went on to state that the president's proposal would set the precedent for another crash.
Varney continued his attack on the president's housing initiatives on the August 7 edition of Fox Business' Varney & Co. with senior legal analyst Andrew Napolitano who agreed that the president "wants to transform them [Fannie Mae and Freddie Mac] ... into something more sinister" through federal regulation of the banking industry for his own political gain.
Fox is once again attacking the president for policies he does not actually support. Furthermore, they are once again blaming the financial collapse on bad borrowers who were extended loose credit through government regulation, even though economists conclude otherwise.
On August 6, President Obama spoke at Desert Vista High School in Phoenix, Arizona, on the merits of "responsible homeownership." The president outlined a vision to build upon stable growth in the housing market without burdening American taxpayers with the failures of risky borrowers and lenders. From the speech:
We've got to give more hardworking Americans the chance to buy their first home. We have to help more responsible homeowners refinance their mortgages, because a lot of them still have a spread between the rates they're paying right now on their mortgage and what they could be getting if they were able to refinance.
And we've got to turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place. We got to build a housing system that is durable and fair and rewards responsibility for generations to come. That's what we've got to do.
The president specified that his plan will not bail out risky lenders and borrowers at the expense of the public, and that it would take steps to curtail some of the rampant market speculation that helped drive the housing bubble before the 2008-09 crash. The president indicated support for winding down the two government-backed mortgage giants; meanwhile, legislation to gradually dissolve Fannie and Freddie over the course of five years is already proceeding through the House and Senate.
President Obama also outlined a multi-step program that would allow borrowers to refinance at today's low rates, make more credit available to well-qualified borrowers, rebuild hard hit communities, and ensure affordable rent to families who opt not to buy a home.
The president also commented on the prospect of immigration reform providing a boost to the housing industry. According to The New York Times, a study by the National Association of Hispanic Real Estate Professionals estimates that the Senate's bipartisan immigration reform bill could generate up to $500 billion in mortgage lending to new citizens and documented legal residents.
Contrary to Varney's continued accusations, economists argue that loose private sector lending, rather than government-sponsored loans to "poor credit borrowers," precipitated the housing market's collapse. While Government-Sponsored Enterprises (GSEs) including Fannie Mae and Freddie Mac did contribute to the market's overall instability, a Brookings report finds that "Fannie and Freddie did not catalyze the market for subprime MBS [Mortgage Backed Securities]; rather, they started to hold such mortgages in the pools they purchased, perhaps because of shareholder pressure or to regain market share."
According to Brookings senior fellow Alice Rivlin, it was the private sector's "extraordinary decline in lending standards" that caused the crisis, and GSEs do not deserve the blame. Dean Baker of the Center for Economic and Policy Research notes that GSEs began buying junk bonds "late in the game" as a response to pressure from private market, citing a Moody's investor document. Data comparing GSE lending to the private sector indicates that GSEs took fewer risks than the private sector.