WASHINGTON Jan 6 Mel Watt, who was sworn in on
Monday to head the agency that regulates mortgage finance firms
Fannie Mae and Freddie Mac, has signaled a
new approach to U.S. housing policy that will put more of an
emphasis on ensuring access to credit.
Watt, a 68-year-old North Carolina Democrat who spent more
than two decades in Congress, is the first permanent director of
the Federal Housing Finance Agency in four years.
"Today's housing finance system is one of the keys to our
economic recovery," Watt said in a statement after being sworn
in. He said he hoped to "develop a strong foundation for moving
this system forward for the benefit of all Americans at this
critical point in our nation's history."
Even before taking office, Watt had said that he would delay
a series of Fannie Mae and Freddie Mac loan-fee hikes that were
announced by the FHFA a day ahead of his confirmation by the
U.S. Senate in December. Industry and consumer groups decried
the increases as driving up the cost of borrowing.
Jaret Seiberg, a senior policy analyst at Guggenheim
Securities, said there were high hopes that Watt would "focus on
expanding the mortgage credit box".
"The open question is how effective he will be and how
strongly he will endorse that role," he said. "The first few
months are likely to tell the market a lot about his tenure."
As the overseer of government-controlled Fannie Mae and
Freddie Mac, Watt has authority over two companies at the heart
of the U.S. housing finance system.
The companies, which back about 60 percent of U.S. home
loans, buy mortgages from lenders and package them into
securities on which they guarantee payments of principal and
interest. In doing so, they serve as major sources of funding
for hundreds of banks.
Fannie Mae and Freddie Mac 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.
As the head of the FHFA, Watt will be able to influence how
much mortgage credit consumers can access.
Watt's predecessor, Edward DeMarco, had faced a barrage of
criticism from both housing groups and consumer advocates for
blocking Fannie Mae and Freddie Mac from slashing mortgage
balances for troubled borrowers. The move, however, won praise
from Republicans for protecting the interest of taxpayers.
In contrast, Watt 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 owe more on their loans than their homes are worth.
Mortgage-bond investors worry such a step and other efforts
Watt may make to support the housing market could make the
securities they hold less valuable.
Watt was nominated by Obama in May, but his confirmation hit
a snag when Senate Republicans threatened to filibuster his
nomination. Senate Democrats later changed the rules to make it
possible for Watt and other presidential nominees to overcome
filibusters on a simple majority vote; previously it took 60
votes in the 100-seat chamber.
He was confirmed on a 57-41 vote. All 55 members of the
Democratic caucus supported Watt, while only two Republicans
Republicans have argued that Watt, a lawyer who served in
the House of Representatives from 1992 until his resignation to
take the FHFA job this year, lacks the expertise to oversee the
mortgage giants. Some worry he will be unable to resist White
House pressure to pursue the administration's policy goals.
The FHFA director is selected by the president, but serves
as an independent regulator for a five-year term.
With a veteran Democrat in the post, the agency's policies
are expected to more closely align with initiatives by the
Democrat-controlled Senate and the White House to overhaul the
nation's $10 trillion mortgage market.
Obama and his fellow Democrats in Congress have started the
reform process and are building bipartisan support to replace
Fannie Mae and Freddie Mac, but they want to ensure some
government support for housing remains.
A final bill could take years.