WASHINGTON (Reuters) - A Senate panel on Tuesday backed President Barack Obama’s nominee to oversee ailing mortgage finance giants Fannie Mae and Freddie Mac, paving the way for approval by the full Senate.
The Senate Banking Committee approved the nomination of North Carolina Banking Commissioner Joseph Smith to be director of the Federal Housing Finance Agency on a 16-6 vote. Smith would replace Edward DeMarco, who has been FHFA’s acting director since September 2009.
If confirmed by the full Senate, as expected, Smith would oversee Fannie Mae and Freddie Mac as Congress and the Obama administration chart the long-term structure of the two government-controlled entities.
Then-Treasury Secretary Henry Paulson seized Fannie Mae and Freddie Mac in late 2008 as the congressionally chartered but privately held corporations faced rapidly mounting losses from non-performing loans.
The government control was meant to be temporary, and the Obama administration has vowed to lay out by January its vision for the future of the two firms, which buy residential mortgages to free up lenders’ finances so they can lend again.
The two firms have taken more than $150 billion in direct aid from a temporary unlimited line of credit from the Treasury Department in order to stay afloat.
DeMarco has tightened the screws on lending to limit taxpayer losses and has resisted pressure from the Obama administration to force Fannie Mae and Freddie Mac to participate in a government program to reduce the loan principal for borrowers who owe more than their home is worth.
The Federal Housing Administration earlier this year announced a program that would provide government incentives to lenders who reduce principal for so-called “underwater” borrowers who are current on their mortgage.
Pressed at his confirmation hearing last week by the panel’s top Republican, Richard Shelby of Alabama, Smith vowed to be an “independent” regulator. Asked by Reuters after his hearing for his views on reducing principal for some borrowers in an effort to stem foreclosures, Smith declined to comment.
In his testimony before the committee, Smith said government support of the housing market “is critical at this time,” but he added that “conservatorship cannot be a long-term solution.”
During Smith’s tenure as bank commissioner, North Carolina allowed far fewer new banks to open than other Southeastern states in the boom years before the financial crisis in 2008.
The move tamped down industry growth, but forestalled the bank failure problems that now plague Georgia and Florida, among others.
Additional reporting by Joe Rauch in Charlotte, North Carolina; Editing by Chizu Nomiyama