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Watt nomination 1st step to fixing Fannie, Freddie

Commentary: Housing finance post key to economic recovery
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By Darrell Delamaide
May 2, 2013, 1:37 p.m. EDT

WASHINGTON (MarketWatch) — President Barack Obama clearly has a soft spot in his heart for Charlotte, N.C., naming two of the city’s prominent politicians to top government posts this week after selecting it as the site of last year’s Democratic convention.

On Monday, Obama nominated Charlotte Mayor Anthony Foxx as Transportation secretary and two days later named Rep. Mel Watt, whose gerrymandered congressional district reaches from Charlotte to Greensboro, to head the agency that regulates the government’s mortgage lending.

While the latest headlines focus on the nomination of billionaire heiress Penny Pritzker to head the Commerce Department, the Watt appointment is potentially much more important.


It would be hard to find a government department more inconsequential than Commerce. That Cabinet post often goes as a sinecure to some business figure who has been helpful to the president. Commerce secretaries come and go while hardly leaving a trace in Washington.

The appointment of Watt, a 20-year veteran of Congress and an influential member of the House Financial Services Committee, to head the Federal Housing Finance Agency, which regulates the mortgage lenders Fannie Mae FNMA -0.97% and Freddie Mac FMCC +0.12% , could mean some much-needed relief to distressed homeowners.

Beyond the immediate issue of principal forgiveness on government-guaranteed mortgages, however, the appointment of a full-time director to the FHFA, after nearly four years of a controversial acting head, would be the first step in finally recasting the government’s role in housing finance. And that in turn is key to a sustained recovery in housing and the broader economy.

Any Obama nomination will have trouble in a Senate where the minority party routinely abuses the filibuster rule to thwart appointments, but the Watt nomination is especially problematic and was generally given little chance of success when it was announced. Read more about the controversy generated by the nomination.

Sen. Elizabeth Warren, the Massachusetts Democrat who has become the progressive standard bearer in Washington, immediately quelled reservations on the left about Watt’s ties to Charlotte-based Bank of America BAC +0.41% and other campaign contributors by giving him her imprimatur. Read more about the industry’s financial support for Watt.

“Congressman Watt is a thoughtful policy maker with a deep background in finance and a long record as a champion for working families,” Warren said in a statement. “The Senate should confirm Congressman Watt soon so he can get to work stabilizing shaky housing markets and helping struggling homeowners.”

More surprising was a show of support from top Republicans. Rep. Spencer Bachus of Alabama, former chair of House Financial Services, praised Watt as “as a serious and substantive legislator” whom he admired “for his intellect, attention to detail, and dedication to serving the public.”

Sen. Richard Burr also endorsed his fellow North Carolinian, saying that Watt “will work hard to protect taxpayers from future exposure to Fannie Mae and Freddie Mac.”
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But Republicans have created a narrative about the financial crisis that blames politically motivated lending by Fannie and Freddie for the housing bubble and subsequent crash and want to get the government out of housing finance.

That’s not likely to be the direction Watt would take in restructuring the two government-sponsored enterprises, currently in conservatorship under direct FHFA control.

Watt has been in the forefront of trying to stop predatory lending in mortgage finance. Back in 2005, he co-authored an unsuccessful bill that, among other things, would have hindered mortgage originators from making loans that borrowers could not repay.

Again in 2009, in the midst of the financial crisis, Watt sponsored a bill that would have placed limits on mortgages. That legislation passed the House but died in the Senate.

Edward DeMarco, who has been acting director of the FHFA since September 2009, has blocked any principal forgiveness on Fannie and Freddie loans, citing the moral hazard and also claiming that his job is to avoid wasting taxpayer money.

However, a new report from the Congressional Budget Office out this week documents that principal forgiveness would actually save taxpayer money as well as boosting the economy.

The Obama administration has been tardy in helping distressed homeowners or reforming housing finance. Former Treasury Secretary Timothy Geithner was more concerned about the health of the banks than the fate of homeowners underwater on their mortgages.

The administration’s effort at mortgage relief, the Home Affordable Mortgage Program, or HAMP, has been notoriously ineffective.

A 2010 effort to fill the FHFA position with another highly qualified North Carolinian, Joseph Smith, at that time the state’s banking commissioner, was blocked by Republicans.

It’s probably too much to hope that it will go differently this time. But it is clear that the government mortgage lenders cannot remain in limbo forever, and there will be no progress on deciding their fate until the FHFA post is filled.

Darrell Delamaide is a political columnist for MarketWatch in Washington. Follow him on Twitter @MKTWDelamaide.


http://www.marketwatch.com/story/watt-nomination-1st-step-to-fixing-fannie-freddie-2013-05-02?siteid=yhoof2