WASHINGTON, Dec 22 (Reuters) - 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 the Senate.
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 mortgages.
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.
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 underwater borrowers.
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 128 applications.
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)