SAN DIEGO—Democratic White House hopeful Barack Obama said Saturday he was confident "prudent steps" by the U.S. government would stabilize mortgage giants Fannie Mae and Freddie Mac but that it was necessary to see how the situation developed before deciding on what steps to take.
Obama said he had "little doubt we've moved into recession at this point" and that he was committed to ensuring liquidity in the housing market.
In his first comments on market turmoil over Freddie Mac and Fannie Mae, Obama told reporters on a flight to San Diego that he was monitoring the situation of the two institutions closely and that it was of "extraordinary concern."
"We have to understand that those two institutions play a critical role in making sure American home owners can buy a home," the Illinois senator said. "And I have confidence that with some prudent steps by the government, that we'll be able to stabilize the situation."
Obama was cautious when asked whether he would favor a bailout of Freddie Mac and Fannie Mae, whose shares tumbled last week on concerns about their capital due to the mortgage crisis.
"There are a lot of different definitions of what a bailout would look like," he said. "There are issues related to the short-term liquidity, when they borrow money, versus issues related to whether the underlying assets of the two corporations are really unsound.
"I think we need to watch carefully and see how it plays out before we make a decision about which steps need to be taken, if any," he said.
The two companies both said on Friday that their finances were sufficiently sound to withstand the housing crisis.
Raised Concerns
Asked about the impact of market rumors on the share price, when some say the two have plenty of liquidity, Obama said the bigger problem was the underlying housing market.
"Part of the problem is that although the mortgages they hold are sound, housing valuations are going down and that changes their balance of capital to debt," Obama said.
"It's not that the underlying assets have proven to be non-performing assets, this isn't like holding a bunch of sub-prime loans but it does raise concerns."
Obama said he welcomed the passage of a housing bill by the Senate and "I'm assuming the president will sign it."
"What we have to do is find bottom in the housing market so that over time the banks can write off their bad debt and we can start moving back into a more normal housing situation," he said.
Obama said the housing bill was one of several steps needed quickly for the economy, including an economic stimulus package.
Arizona Sen. John McCain, Obama's Republican rival in November's presidential election, said on Friday he supports government assistance to keep Freddie Mac and Fannie Mae from going under but said, "I don't know exactly what that action is now."
Fannie Mae and smaller Freddie Mac are shareholder-owned companies charged by Congress with supporting housing by keeping money flowing in the mortgage market.
Last week, investors began to worry that the companies would finally be pinched by the deep U.S. housing slump and the credit crunch. Reports that the Bush administration was considering how to handle a failure at either company pummeled the firms' share prices.
Treasury Secretary Henry Paulson said on Friday his goal is for the companies to continue in their current form.
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