U.S. Senate Republicans Block Nomination of Mel Watt to Head FHFA

U.S. Senate Republicans today dealt a blow to President Barack Obama’s efforts to install his own nominee as regulator of Fannie Mae (FNMA) and Freddie Mac (FMCC), blocking an effort to confirm Representative Mel Watt to the post.

Republicans cited misgivings about the qualifications of Watt, a North Carolina Democrat, to lead the Federal Housing Finance Agency. All but two of them voted against moving his nomination to a final debate, leaving Democrats short of the 60 votes they needed.

Watt would replace Edward J. DeMarco, who has been acting director of the agency since 2009.

“The procedural failure of this vote does not completely end the Watt nomination saga but it is undeniably a body blow for the effort,” said Isaac Boltansky, an analyst with Compass Point Research Trading LLC in Washington.

Democrats could bring the nomination to the floor again. Richard Burr of North Carolina and Rob Portman of Ohio voted with Democrats, and Obama administration officials said they still hoped to convince more Republicans to support Watt.

Senate Majority Leader Harry Reid, a Nevada Democrat, changed his position for procedural reasons after the initial 57-41 vote so that Democrats can bring the matter up again.

Photographer: Andrew Harrer/Bloomberg

Representative Mel Watt, a Democrat from North Carolina, and U.S. President Barack Obama's nominee as director of the Federal Housing Finance Agency (FHFA), listens during a Senate Banking Committee nominations hearing in Washington, D.C. Close

Representative Mel Watt, a Democrat from North Carolina, and U.S. President Barack... Read More

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Photographer: Andrew Harrer/Bloomberg

Representative Mel Watt, a Democrat from North Carolina, and U.S. President Barack Obama's nominee as director of the Federal Housing Finance Agency (FHFA), listens during a Senate Banking Committee nominations hearing in Washington, D.C.

The White House is “absolutely not” giving up on Watt’s nomination, White House press secretary Jay Carney said at a press briefing after the vote.

‘Gigantic Disappointment’

Vice President Joe Biden, who attended the Senate vote, called the defeat a “gigantic disappointment.”

“Mel Watt is absolutely, totally qualified,” Biden said in an interview.

A change of leadership at the FHFA could have a broad impact on the mortgage market since Fannie Mae and Freddie Mac currently back about two-thirds of new mortgages. The nomination also comes as lawmakers are pushing legislation to replace the mortgage companies, which buy home loans and package them into securities on which they guarantee payments of principal and interest.

The White House began a push this week to get Watt, 68, confirmed. National Economic Council Director Gene Sperling and other administration officials met Oct. 28 with housing industry representatives at the White House and asked for their help finding the needed votes.

Supporting DeMarco

Many Republicans prefer DeMarco, whom they praise for his efforts to reduce taxpayer expenditures on Fannie Mae and Freddie Mac. DeMarco has been proceeding with his own efforts to shrink the two U.S.-owned companies in the absence of action from Congress.

Republicans have criticized Watt’s past support for Fannie Mae and Freddie Mac and his qualifications for the job. Watt, a lawyer, has served in Congress since 1992. Republican resistance to the nomination has centered on a view that the leadership of FHFA is better suited to a person with technical rather than political expertise.

Senator Bob Corker, a Tennessee Republican, said he hopes the president withdraws Watt’s nomination and instead names a technocrat.

“We’ve spent so much time at the White House prior to them naming a nominee asking them to please not appoint a politician, please appoint a technocrat,” Corker said in an interview after the vote. “To have a politician in that position, to me is inappropriate.”

Principal Reductions

The agency’s chief has the power to set and modify terms for the 50 percent of existing U.S. mortgages owned or backed by Fannie Mae and Freddie Mac. Watt had urged Obama to require Fannie Mae and Freddie Mac to reduce principal on some of the loans they guarantee.

The rebounding housing market has improved the companies’ financial condition. Both are posting record profits after drawing $187.5 billion in taxpayer aid to stay afloat in the wake of the 2008 credit crisis.

Bills eliminating Fannie Mae and Freddie Mac have been introduced in both the House and Senate this year. The expected legislative vehicle for an overhaul is a bill being drafted by the leaders of the Senate Banking Committee, Democrat Tim Johnson of South Dakota and Republican Mike Crapo of Idaho. The measure, which could be introduced by the end of the year, is expected to include a role for the federal government as a reinsurer of mortgages behind private capital.

Corker and Senator Mark Warner, a Virginia Democrat, introduced a bill in June that would liquidate Fannie Mae and Freddie Mac in five years. House Republicans have also introduced a bill that would largely eliminate the government’s guarantee for mortgages. That measure is not bipartisan and is unlikely to become law.

To contact the reporters on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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