WASHINGTON (Reuters) - President Barack Obama is preparing to name a new regulator to oversee mortgage financiers Fannie Mae and Freddie Mac, and economist Mark Zandi is a leading choice among the candidates, according to people familiar with the process.
Zandi would consider the post if offered to him by Obama, according to one source, who requested anonymity in order to discuss personnel matters.
Although the White House’s decision has not been made final, the vetting process is well underway to find a permanent director for the Federal Housing Finance Agency. The position requires Senate confirmation, and Republicans might try to block an Obama nominee.
Zandi, chief economist of Moody’s Analytics, may have better prospects for winning confirmation, analysts said. While a registered Democrat, Zandi was an economic adviser to Republican Senator John McCain during his 2008 presidential campaign.
“A Zandi nomination would help the administration avoid an awkward political fight,” wrote Jaret Seiberg, a senior policy analyst with Guggenheim Securities. But he added that while Zandi is a “strong leader,” the ideas he favors are opposed by some conservatives.
The White House would not comment on the appointment or current deliberations. Zandi had no comment.
FHFA’s current chief, Edward DeMarco, is a career civil servant who has been serving in an acting capacity. He was a deputy at FHFA when he was named to the position in 2009 and has never been selected as the agency’s permanent director or gone through the Senate confirmation process.
Representative Mel Watt, a North Carolina Democrat, is also considered a possible candidate to replace DeMarco, according to sources familiar with the matter. However, there are concerns that Senate Republicans would likely block the longtime lawmaker’s nomination.
“The administration realizes that Republicans will never confirm a Democrat who has served for two decades on Capitol Hill to run FHFA,” said Seiberg.
The next FHFA director would be expected to guide Fannie Mae and Freddie Mac through an overhaul process that would reduce their role in the housing finance system. Both Democrats and Republicans agree that Fannie Mae and Freddie Mac should eventually be wound down, but have failed to agree on what should replace them.
During a Senate Banking Committee hearing on Thursday focused on FHFA oversight, Republican Senator Bob Corker of Tennessee expressed concern that the White House was preparing to move ahead on the leadership decision before providing clarity for Congress on a future solution for Fannie Mae and Freddie Mac.
“I don’t know why anyone would change something that is working so well. But I think that if that were to be the case, we certainly should hear from the administration explicitly about what they want to happen with Fannie and Freddie before that occurs,” Corker said.
Fannie Mae and Freddie Mac were seized by the government in 2008 as mortgage losses mounted and currently back about half of existing home loans. The two government-sponsored enterprises have received $187.5 billion of taxpayer funds to stay afloat.
The two companies do not make loans. Instead, they provide financing to banks and lenders by purchasing mortgages, which they either keep on their books or package as securities to be sold to investors with a guarantee.
DeMarco has already worked to shrink Fannie and Freddie’s footprint in the mortgage market in the absence of direction from the White House and Congress. Both companies were profitable in 2012 after suffering losses for several years.
“Hopefully, the administration will push forward with reform. But I don’t see any sign of it,” said Phillip Swagel, who served in the Treasury Department under President George W. Bush. “In the meantime, DeMarco and FHFA deserve a lot of credit for doing what they can to move toward a better housing finance system.”
Liberal activists and political interest groups have joined Democrats in criticizing DeMarco over his decision to block Fannie Mae and Freddie Mac from reducing loan principal for borrowers who owe more than their homes are worth, a position which is also at odds with the White House. His stance has won praise from some Republicans who fear the loan modifications could lead to further losses for taxpayers.
Obama’s last nominee to head FHFA in 2011, North Carolina banking commissioner Joseph Smith, was blocked by Republicans and eventually withdrew his name from consideration.
Reporting by Margaret Chadbourn; Editing by Tim Ahmann, Jackie Frank and Dan Grebler