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Obama choice of Charlotte Rep. Mel Watt to regulate mortgage finance sparks controversy

By Kevin G. Hall, Franco Ordoñez and David Lightman
Washington Bureau

WASHINGTON The Obama administration’s selection Wednesday of Charlotte Rep. Mel Watt to head the Federal Housing Finance Agency is likely to spark a confirmation battle and new debate over the government’s role in backstopping home loans.

The agency’s job is to oversee the government-sponsored titans of mortgage finance, Fannie Mae and Freddie Mac.

The selection of Watt – a Democrat who’s served 20 years in Congress, but hasn’t worked in banking or finance – touched off immediate controversy. He’ll 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 henhouse,” Sen. Bob Corker, R-Tenn., said in a statement minutes after news broke of Watt’s selection. “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 who’s defended the little guy.

“He’s helped protect consumers from the kind of reckless risk-taking that led to the financial crisis in the first place. And he’s fought to give more Americans in low-income neighborhoods access to affordable housing,” Obama said of Watt, who did not speak to reporters.

The FHFA has been headed by an acting director, Edward DeMarco, since Sept. 1, 2009. DeMarco has frustrated the administration’s efforts to forgive some mortgage-holder debt and to loosen lending standards to help more borrowers take advantage of today’s low interest rates.

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.

Watt, 67, is the second North Carolinian to be nominated for the post by Obama. His pick in 2010, North Carolina Bank Commissioner Joseph Smith, was rebuffed by Republicans. North Carolina, home to Bank of America, has been more aggressive than most states in policing lenders and forcing banks to work with homeowners who’d been given unsuitable mortgages.

‘Thoughtful policymaker’

For much of Watt’s two decades in Congress, he’s served on the influential House Financial Services Committee. Sen. Elizabeth Warren, D-Mass., called him “a thoughtful policymaker with a deep background in finance and a long record as a champion for working families.”

His nomination comes as Obama faced criticism for a lack of Cabinet diversity. On Monday, the president countered those criticisms when he nominated Charlotte Mayor Anthony Foxx to serve as transportation secretary.

Watt is a graduate of the old York Road High School in southwest Charlotte and was an honors graduate from UNC Chapel Hill in 1967. He earned his law degree in 1970 from Yale and practiced law for more than 20 years.

He served in the N.C. Senate from 1985 to 1986 and was elected to Congress in 1992. Watt also was campaign manager for Harvey Gantt in his successful Charlotte mayoral campaigns and his unsuccessful run for U.S. Senate in 1990.

Erskine Bowles, a fellow North Carolinian and former White House chief of staff under President Bill Clinton, praised Watt as a first-rate selection. Both men were classmates at UNC.

Bowles, a Democrat in a debt-tackling partnership with former Republican Sen. Alan Simpson of Wyoming, told The Associated Press that Watt brings “a bright mind, great work habits and an understanding of how Washington works to the job.”

Hugh McColl, former Bank of America chairman and CEO, also welcomed Watt’s nomination.

“What he brings to everything – doesn’t matter the subject – is an open mind,” McColl told The Associated Press. “He has clarity of thought.”

GOP scrutiny ahead

Republicans are sure to scrutinize the nominee’s 20-year voting record in Congress. Close looks at past decisions made by Obama’s picks to head the Labor Department and the Bureau of Alcohol, Tobacco, Firearms and Explosives have delayed their confirmations.

Obama joked about this when ending his White House remarks on Watt and Tom Wheeler, who was nominated to head the Federal Communications Commission.

“And I’m going to go ahead and thank the Senate now for what I’m sure will be a speedy confirmation process so these two gentlemen can get to work right away,” the president said.

Up until the financial crisis and conservatorship in 2008, Fannie and Freddie operated as private enterprises with oversight from Congress and the Federal Housing Finance Agency’s predecessor, the Office of Federal Housing Enterprise Oversight.

How to “unwind” Fannie and Freddie is a complicated question. For now, they’re the only game in town. Before the financial crisis, sparked by a housing bubble and a collapse in lending standards, Wall Street banks had aggressively gone after Fannie’s and Freddie’s business, capturing a large share of the market long enjoyed by the two quasi-government entities.

Doing away with Fannie and Freddie has been a Republican rallying point, placing calls for their dissolution in the Republican Party platform during the 2012 elections.

“Fannie Mae and Freddie Mac were a primary cause of the housing crisis because their implicit government guarantee allowed them to avoid market discipline and make risky investments,” the platform read.

Five years after the housing crisis, lawmakers continue to debate what to do with both Fannie and Freddie. Legislation is expected late this year in the House of Representatives and the Senate, and since each is controlled by a different party, very different approaches are expected.

Experts like Kim Wallace, who until recently was a Treasury Department liaison with Congress, don’t expect huge changes. But Wallace thinks that both borrowers and lenders will face additional fees when taking out a mortgage to help cover regulatory costs and reduce taxpayer burden.

“Washington is still in a posture that they don’t want to risk derailing what’s left of this housing rebound, but at the same time, they have to deal with the increasing cost of the housing subsidies” through the two entities, said Wallace, now an analyst for Renaissance Macro Research. White House correspondent Lesley Clark, Observer staff writer Steve Lyttle and the Associated Press contributed.

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