Confirmation Process Likely to Sideline Next FHFA Nominee

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WASHINGTON — Rep. Mel Watt is on the shortlist to lead the Federal Housing Finance Agency, but it is unclear whether he — or any nominee — can survive the Senate confirmation process.

Analysts and industry representatives praised the North Carolina Democrat and senior member of the Financial Services Committee for his extensive work on housing issues, as the administration inches closer to naming a new director for the agency.

Yet even before a nomination is made, observers said Senate Republicans are likely to oppose any selection by the administration, just as they have for the Consumer Financial Protection Bureau.

"Good guy, great candidate, broken process and unlikely confirmation," said Edward Mills, a financial policy analyst at FBR Capital Markets and former Hill aide, of a potential Watt nomination. "The reality here is it almost doesn't matter who is nominated — they are near universal in the likelihood of getting opposition from Senate Republicans."

Watt's name first became public late Friday, when The Wall Street Journal said the White House was considering him for the post. Other front runners include Phyllis Caldwell, a former Treasury Department official and Michael Stegman, a Treasury housing advisor, according to press reports. An official selection is expected as early as April.

Of all the potential nominees, Watt is arguably the best known, having served on both the Financial Services and House Judiciary committees for two decades. Industry observers said he is widely respected in Congress for his intelligence and knowledge on housing issues.

"No one is as smart and as committed a policymaker," said Judith Kennedy, president and chief executive of the National Association of Affordable Housing Lenders.

A spokesman for Watt declined to comment about a potential nomination, but Watt will have a timely opportunity to press Ed DeMarco, the agency's acting director, about his policy decisions at a banking panel hearing on Tuesday.

DeMarco has come under heavy criticism from White House officials and some Democratic lawmakers for his decision last year to block principal reductions for underwater mortgages controlled by the government-sponsored enterprises.

Attorneys general from nine states recently wrote to President Obama and Senate leaders, joining the chorus of critics pushing to have DeMarco, a Bush appointee, replaced over the debt forgiveness issue.

"Simply put, by refusing to allow for principal write-downs that would result in more loan modifications, FHFA stands as a direct impediment to our economic recovery," the March 15 AG letter says.

But DeMarco's defiance has won him some allies across the aisle, and the GOP is likely to stick with the status quo rather than confirm a director who will be more aligned with the White House.

"The FHFA director, as conservator of Fannie and Freddie, has a huge amount of power — Fannie and Freddie are the housing market, and you're choosing someone who really has near universal authority over future of hosing financing," said Mills. Senate Republicans are "very concerned about getting an Obama appointee who's supportive of the policy goals of the administration."

The GOP raised similar concerns about fellow North Carolinian Joseph Smith, the state's banking commissioner, who was nominated to head the FHFA in November 2010.

Sen. Richard Shelby, R-Ala., then-lead Republican of the Senate Banking Committee, objected to the bid, warning that Smith would be a "lapdog" of the administration. Smith withdrew his name from consideration in January 2011 when it became clear that he didn't have enough votes for confirmation.

Yet Smith's views were relatively unknown, particularly when compared with Watt, who has a long track record.

"Senate Republicans chose to block Joe Smith over his unconfirmed position on issues such as principal reduction," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. "Watt, on the other hand, has openly supported policies such as principal reduction and cram-downs, which makes it highly likely that Republicans would oppose his nomination as they did with Smith."

Indeed, Watt has signed several key letters with House Democrats in favor of principal reductions over the past year, though he notably did not put his name on a missive from lawmakers last month asking DeMarco to step down. He also worked for several years with former Reps. Barney Frank and Brad Miller on predatory lending issues, and has supported "cram-down" of residential mortgages, in which bankruptcy courts can alter the terms of delinquent mortgages in some cases.

Brian Gardner, a policy analyst at Keefe, Bruyette & Woods said that Watt could potentially bring more of a vision to the agency compared to DeMarco, who is known mostly as a technocrat.

DeMarco is "not so much a leader on what Fannie and Freddie should look like going forward, and I think that's something Mel Watt would probably bring — a stronger view of what the administration wants and sees for the future," he said, while warning that the issues facing the agency "tend to be more complex and complicated, so I'm not sure the skill set of a high level policy mind is what's called for right now."

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Comments (1)
Unless there is a clear problem with a specific nominee, leaders need to be installed so that important work may proceed in a timely fashion. The blanket failure of the Senate to confirm nominees in key agency positions prevents the public's interest from being served. Filibusters have gotten way out of hand.
Posted by andkel | Tuesday, March 19 2013 at 10:07AM ET
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