WASHINGTON Dec 22 The nomination of North
Carolina bank commissioner Joseph Smith to head the agency that
oversees Fannie Mae FNMA.OB and Freddie Mac FMCC.OB died on
Wednesday as the U.S. Senate adjourned without acting on it.
While President Barack Obama could renominate Smith to
head the Federal Housing Finance Agency after the new Senate
convenes on Jan. 5, he may be reluctant to do so, given
Republican opposition. The Republicans' hand will be even
stronger next year because they will gain five more seats in
Senator Richard Shelby, the top Republican on the Banking
Committee, put a "hold" on Smith, who he has called a "tool of
the Obama administration."
Under Senate rules, any senator can block presidential
nominees for any reason. Sixty votes are needed in the
100-member Senate to clear the hurdle.
At a committee vote on Smith's nomination, Shelby voiced
concern that Smith would support forcing Fannie Mae and
Freddie Mac to write down principal for borrowers who owe more
than their homes are worth, but are current on their
Fannie Mae and Freddie Mac have already received more than
$150 billion in taxpayer funds from the Treasury since being
taken over by the government at the height of the financial
crisis in late 2008.
Shelby is concerned that taxpayers would have to absorb
even more losses if Fannie Mae and Freddie Mac agreed to
reduce the principal on loans, a step the Obama administration
is urging as a way to spur a housing recovery.
Smith declined to voice his opinion on the program's
merits, and simply told Shelby he would make his own decisions
as an "independent" regulator.
AT STAKE: HELP FOR UNDERWATER BORROWERS
Treasury Secretary Timothy Geithner said last Thursday
that the administration was talking with the FHFA, Fannie
Mae's and Freddie Mac's regulator, in an effort to lure the
two mortgage finance heavyweights to participate in programs
the Obama administration has set up to assist these so-called
The programs, which provide incentives to lenders who
agree to reduce loan principal, have failed to gain traction,
largely because Fannie Mae and Freddie Mac are worried about
taking further losses and are not participating.
So far, only 15 loans have been modified under the main
government program to help underwater borrowers. That program,
run by the Federal Housing Administration, has received just
Economists say the struggling U.S. housing market will not
rebound until the 11 million underwater homeowners come up for
air and that reducing principal would go a long way toward
jump-starting a housing recovery.
"We think there is a pretty good economic case for Fannie
Mae and Freddie Mac to participate in those programs,"
Geithner told the Congressional Oversight Panel, which
oversees the government's financial rescue efforts.
He argued that doing so could "improve the odds" of a rise
in home prices, which in turn would decrease future defaults
and actually reduce taxpayer losses.
(Reporting by Corbett B. Daly; Editing by Jan Paschal)