* Watt will replace FHFA Acting Director Edward DeMarco
* Obama nominated Watt in May to regulate Fannie, Freddie
* More Fannie, Freddie mortgage aid expected under Watt
By Margaret Chadbourn
WASHINGTON, Dec 10 The U.S. Senate on Tuesday
confirmed Representative Mel Watt to lead the agency that
regulates taxpayer-owned mortgage financiers Fannie Mae
and Freddie Mac, providing greater leeway
for the Obama administration's mortgage aid initiatives.
The vote to approve Watt as regulator of the Federal Housing
Finance Agency was 57-41. Only two Republicans - including
Richard Burr, who is from Watt's home state - voted in favor of
the North Carolina Democrat.
President Barack Obama nominated Watt in May to head the
independent regulator. But Republicans worried he would be too
beholden to the White House and blocked a final vote when
Democrats brought the nomination up in October.
Last month, however, Democrats changed the rules to allow
nominees like Watt to overcome filibusters with a simple
majority in the chamber, which they control 55-45.
"Watt's confirmation will provide the housing market more
certainty as our economy continues to recover from the financial
crisis," Senator Tim Johnson, the Democratic chairman of the
Senate Banking Committee, said in a statement.
Watt will be the agency's first permanent director since
2009. He replaces FHFA Acting Director Edward DeMarco, a career
civil servant whose focus during his four-year tenure has been
on limiting taxpayer losses.
Fannie Mae and Freddie Mac, which currently back about half
of existing U.S. home loans, were seized by the government in
2008 as mortgage losses mounted. They have received $187.5
billion in taxpayer funds to stay afloat, while paying about
$185.2 billion in dividends to the government for that support.
Watt's confirmation would be a victory for the Obama
administration, which has at times been at odds with DeMarco.
Last year, DeMarco blocked an administration plan to allow
Fannie Mae and Freddie Mac to reduce mortgage principal for some
borrowers who owe more than their homes are worth.
Watt, in contrast, is expected to consider a targeted
principal forgiveness program.
The mortgage industry also anticipates that he will expand
federal programs that allow borrowers with loans backed by
Fannie Mae and Freddie Mac to lower their interest rates even if
they are "under water" on their loans, meaning they owe more
than the value of their homes.
"He's the right person to protect Americans who work hard
and play by the rules every day, and he'll be the right
regulator to make sure the kind of crisis we just went through
never happens again," Obama said in a statement.
Republicans have argued that Watt, a lawyer who has served
in the House of Representatives since 1992, lacks the expertise
to oversee the mortgage giants, and some have said they worry he
would be unable to resist White House pressure to pursue the
administration's policy goals.
"This is not a cabinet position where the nominee is
supposed to be an advocate for the president. Instead, this is
an independent agency with a highly complex task - impacting our
entire economy," said Senator Mike Crapo of Idaho, the top
Republican on the banking panel.
GUIDING HAND IN HOUSING FINANCE OVERHAUL
When the Senate attempted to advance Watt's nomination in
October, he was backed by 56 senators, just shy of the 60 votes
needed at the time to overcome filibusters. His rejection marked
the first time since the Civil War that the Senate denied a
sitting member of Congress an executive branch position.
Watt will take the reins at the regulator in the middle of a
debate over the future of Fannie Mae and Freddie Mac, and he
could have a big impact on a planned overhaul of the $10
trillion U.S. mortgage market.
The Bush administration felt obligated to bail out Fannie
Mae and Freddie Mac at the height of the financial crisis, given
their dominant position in the housing market. Without them,
analysts agree the housing bust would have been much deeper.
But Democrats and Republicans alike see a need to curtail
the government's support for the housing sector, and there is a
bipartisan effort under way in the Senate to wind down both
companies, even though they are now posting record profits.
DeMarco, who is expected to stay on during Watt's
transition, has aimed to shrink the roles of the two mortgage
giants by raising the fees they charge lenders and scaling back
the maximum size of the loans they can back.
Homeowner and consumer advocacy groups have repeatedly
called on Obama to fire DeMarco, who they say has not done
enough to help troubled homeowners. The calls grew as DeMarco
stood firm in his decision to block Fannie Mae and Freddie Mac
from reducing loan principal.
The Obama administration had tried to replace DeMarco
before. Obama nominated Joseph Smith, a former North Carolina
banking commissioner, for the post in 2010, but he withdrew in
the face of stiff Republican opposition.