U.S. Representative Mel Watt, President Barack Obama's nominee to oversee Fannie Mae and Freddie Mac, on Thursday welcomed legislative efforts to abolish the two mortgage companies and said he would consider letting them reduce loan principal for underwater borrowers.
Watt made the remarks at a Senate hearing on his nomination, which marked the start of his uphill push to win confirmation as director of the Federal Housing Finance Agency.
The 67-year-old North Carolina lawmaker has received little support from Republicans, who question whether he has the technical expertise to regulate the government-run companies, which own or guarantee half of all U.S. mortgages.
The so-called government-sponsored enterprises were placed into conservatorship in September 2008 at the height of the financial crisis as they veered toward insolvency. Since then, they have been propped up with $187.5 billion in taxpayer funds, although they have now returned to profitability.
Democrats and Republicans alike want to reduce the government's footprint in the mortgage market and put more of the risk of lending onto the private sector, but they disagree on whether the government's role should be eliminated entirely.
Watt told the Senate Banking Committee the current system was ripe for reform and that there was work to do to "find the right path out of a status quo that no one believes is desirable."
He welcomed a bipartisan effort by some committee members who introduced a bill earlier this week to replace Fannie Mae and Freddie Mac with a government reinsurer of mortgage securities that would backstop private capital.
"The good news is that a broad consensus has emerged on the direction that our next steps must take us - towards a system driven by private capital that minimizes the risk to taxpayers," said Watt, a member of the House of Representatives Financial Services Committee.
If confirmed by the full Senate, Watt would become an influential voice on the future of Fannie Mae and Freddie Mac.
The companies were chartered by Congress to expand mortgage finance, but operated as private, profit-making entities before they were seized by the government. They buy mortgages from lenders and repackage them as securities for investors.
In remarks unlikely to win any Republican allies, Watt said he would likely take a second look at an Obama administration proposal to reduce loan principal for borrowers whose Fannie or Freddie-backed mortgages are worth more than their homes.
The current head of FHFA, acting Director Edward DeMarco, has blocked the proposal, to the chagrin of Democrats, but with the support of most Republicans, who worry about helping irresponsible borrowers at taxpayer expense.
Watt said he would study the issue and make a "responsible decision" if confirmed. He also noted that home prices are rebounding, shrinking the number of underwater borrowers.
"You should have no doubt that I will be a strong and aggressive advocate for the taxpayers in this role," Watt said.
POLITICAL OR TECHNICAL EXPERTISE?
Analysts say Republican opposition could easily scuttle Watt's nomination, given that he will likely need to secure a super-majority of 60 votes in the Senate to overcome procedural hurdles. Democrats control the chamber by only a 54-46 majority. Senator Richard Burr of Watt's home state of North Carolina is the only Republican who has said he will back the nomination.
Watt's nomination is the second attempt by the White House to fill the FHFA position. The previous nominee was blocked by Republicans and eventually withdrew.
The committee's chairman, Democrat Tim Johnson, called Watt "well qualified" and said he wanted to move the nomination expeditiously. The panel is expected to vote on the nomination as early as July, according to a committee aide.
"It is my hope that this time politics will be put aside so that we can focus on the management and oversight of the housing finance system," Johnson said.
The committee's ranking Republican, Mike Crapo of Idaho, said the position "requires very specific expertise" and questioned Obama's selection of a politician to fill the post.
"Any nominee in this important position must be politically independent and have the necessary policy and technical expertise," Crapo said.
Watt defended what he called his "technical qualifications" and told the panel he has "the skill set to do the job." He said his expertise would allow him to help Congress with any future housing reforms.
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