WASHINGTON -- The Obama administrations selection Wednesday of a North Carolina congressman to head the governments mortgage-finance regulator appears certain to spark a confirmation battle and renewed debate over the governments role in backstopping home loans.
Obama announced that hed picked Rep. Mel Watt, a Democrat from Charlotte, to head the Federal Housing Finance Agency.
Never heard of it? Dont worry, most Americans havent, either.
The agencys job is to oversee the quasi-government titans of mortgage finance, Fannie Mae and Freddie Mac. These two, until the summer of 2008, had operated largely as private enterprises with congressional oversight. Since late 2008 theyve been in government conservatorship.
The selection of Watt, a career politician who hasnt worked in banking or finance, touched off immediate controversy. Hell head a highly technical agency, and his nomination did not sit well with Republicans who want changes in housing policy.
I could not be more disappointed in this nomination. This gives new meaning to the adage that the fox is guarding the hen house, Sen. Bob Corker, R-Tenn., said in a statement fired off minutes after news broke of Watts selection and well before the official White House photo op. The debate around his nomination will illuminate for all Americans why Fannie and Freddie failed so miserably.
Obama looked past the questions of qualification Wednesday when appearing before the cameras with Watt at the White House. He instead focused on the rise by Watt from a humble past to a lawmaker whos defended the little guy.
Hes helped protect consumers from the kind of reckless risk-taking that led to the financial crisis in the first place. And hes fought to give more Americans in low-income neighborhoods access to affordable housing, Obama said of Watt, who did not speak to reporters.
Spokesman Jay Carney defended the pick of Watt during the daily White House briefing, noting Obama looks for people who are experienced in a broad variety of ways.
The FHFA has been headed by an acting director, Ed DeMarco, since Sept. 1, 2009. DeMarco has frustrated the administrations efforts to forgive some mortgage-holder debt and to loosen lending standards to help more borrowers take advantage of todays low interest rates.
Liberal groups have rallied across the country urging Obama to fire DeMarco, and Corker, a member of the Senate Banking Committee that must confirm Watt, signaled in his statement that Republicans may fight the nomination in order to keep DeMarco in place.
Before any nominee should be considered for this post, regardless of their qualifications, the administration should explicitly lay out how they will unwind these entities, Corker said.
Fannie and Freddie purchase mortgages from banks and other lenders, then pool them together in a mortgage bond offered to investors. This process, known as securitization, allows banks to get a loan off their books and frees them up for more lending.
The Treasury Department in February 2011 actually laid out five potential paths to unwind Fannie and Freddie by paying off bad debts and collecting more money. Timothy Geithner, then the treasury secretary, signaled favor for a plan that eventually gets rid of Fannie and Freddie in favor of the private sector, with government providing an insurance function in the process.