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Obama to propose eliminating Fannie Mae, Freddie Mac

As Arizona's housing industry slowly and disjointedly recovers from the massive hit it took after the 2008 bust, it provides the perfect setting for the overarching theme of President Obama's economic message this summer: The economy is recovering, but it's not recovering fast enough.

On Tuesday, Mr. Obama will deliver a speech in Phoenix to, as White House spokesman Jay Carney put it Monday, "lay out proposals for continuing to help responsible homeowners and those Americans who seek to own their homes."

Specifically, the president will lay out a proposal to overhaul the mortgage finance system and urge Congress to phase out Fannie Mae and Freddie Mac, which were bailed out by the government five years ago.  In its place, Mr. Obama will propose shifting the bulk of the burden of backing mortgages to the private sector.

Mr. Obama in 2012 put forward proposals to to make it easier for people to refinance their homes, but so far, they've been stalled in the Senate.

"I'm also acting on my own to cut red tape for responsible families who want to get a mortgage but the bank is saying no," Mr. Obama said last month at Knox College in Galesburg, Ill., in the first of a series of speeches in which he's laid out his vision for long-term economic growth. "We'll work with both parties to turn the page on Fannie Mae and Freddie Mac, and build a housing finance system that's rock-solid for future generations."

The setting for Tuesday's speech will also give the president a chance to defend his earlier policies -- Mr. Obama did, after all, speak in Phoenix the day after signing the $787 billion stimulus into law in 2009 -- and make the case for the path forward.

"A home of your own has always been the clearest expression of middle-class security," the president said in Galesburg. "For most families, that's your biggest asset. For most families, that's where your life's work has been invested."

The collapse of the housing industry destroyed $7 trillion in homeowner equity, but the market is slowly turning around. Sales are up, prices are up, and fewer Americans are underwater on their mortgages. The administration is taking partial credit for the positive developments in the housing market so far.

"What we have seen through the grit and determination of the American people and through the decisions made by the administration and the policies put in place, both with Congress and through executive action, has been a very positive change in direction in our housing market," Carney said Monday.

However, Mr. Obama said in Galesburg, "We're not done yet. The key now is to encourage homeownership that isn't based on unrealistic bubbles, but instead is based on a solid foundation, where buyers and lenders play by the same set of rules, rules that are clear and transparent and fair."

The room for improvement is abundantly clear in Arizona, one of the states hit hardest by the housing bust. The Phoenix area is adding construction workers faster than any region in the nation, the Arizona Republic reports, but employment in the industry is still at 1995 levels.

"Arizona certainly has grown and gotten some traction," Thomas Schleifer, assistant research professor at Arizona State University's Del E. Webb School of Construction, told the Republic. "But one of the reasons is Arizona was so far down. Residential (construction) almost went to nothing."

Foreclosures in the Phoenix area have returned to normal levels while the home prices are rising, according to research from Arizona State University. At the same time, federal funds allocated to help struggling homeowners has been slow to reach Arizonans in need -- by the end of March, the Republic reported, Arizona had spent less than 10 percent of its funding from the Troubled Asset Relief Program (TARP) earmarked for homeowners. Some critics of the Obama administration say the eligibility requirements for assistance are too strict.

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