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 Watt, a 68-year-old North Carolina Democrat who spent more than two
decades in Congress, is the first permanent director of the Federal
Housing Finance Agency in four years.
"Today's housing finance system is one of the keys to our economic
recovery," Watt said in a statement after being sworn in. He said he
hoped to "develop a strong foundation for moving this system forward
for the benefit of all Americans at this critical point in our
nation's history."
Even before taking office, Watt had said that he would delay a
series of Fannie Mae and Freddie Mac loan-fee hikes that were
announced by the FHFA a day ahead of his confirmation by the U.S.
Senate in December. Industry and consumer groups decried the
increases as driving up the cost of borrowing.
Jaret Seiberg, a senior policy analyst at Guggenheim Securities,
said there were high hopes that Watt would "focus on expanding the
mortgage credit box".
"The open question is how effective he will be and how strongly he
will endorse that role," he said. "The first few months are likely
to tell the market a lot about his tenure."
As the overseer of government-controlled Fannie Mae and Freddie Mac,
Watt has authority over two companies at the heart of the U.S.
housing finance system.
The companies, which back about 60 percent of U.S. home loans, buy
mortgages from lenders and package them into securities on which
they guarantee payments of principal and interest. In doing so, they
serve as major sources of funding for hundreds of banks.
Fannie Mae and Freddie Mac were seized by the government in 2008 as
mortgage losses mounted. They have received $187.5 billion in
taxpayer funds to stay afloat, while paying about $185.2 billion in
dividends to the government for that support.
As the head of the FHFA, Watt will be able to influence how much
mortgage credit consumers can access.
Watt's predecessor, Edward DeMarco, had faced a barrage of criticism
from both housing groups and consumer advocates for blocking Fannie
Mae and Freddie Mac from slashing mortgage balances for troubled
borrowers. The move, however, won praise from Republicans for
protecting the interest of taxpayers.
In contrast, Watt is expected to consider a targeted principal
forgiveness program.
The mortgage industry also anticipates that he will expand federal
programs that allow borrowers with loans backed by Fannie Mae and
Freddie Mac to lower their interest rates even if they owe more on
their loans than their homes are worth.
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Mortgage-bond investors worry such a step and other efforts Watt may
make to support the housing market could make the securities they
hold less valuable.
Watt was nominated by Obama in May, but his confirmation hit a snag
when Senate Republicans threatened to filibuster his nomination.
Senate Democrats later changed the rules to make it possible for
Watt and other presidential nominees to overcome filibusters on a
simple majority vote; previously it took 60 votes in the 100-seat
chamber.
He was confirmed on a 57-41 vote. All 55 members of the Democratic
caucus supported Watt, while only two Republicans backed him.
Republicans have argued that Watt, a lawyer who served in the House
of Representatives from 1992 until his resignation to take the FHFA
job this year, lacks the expertise to oversee the mortgage giants.
Some worry he will be unable to resist White House pressure to
pursue the administration's policy goals.
The FHFA director is selected by the president, but serves as an
independent regulator for a five-year term.
With a veteran Democrat in the post, the agency's policies are
expected to more closely align with initiatives by the
Democrat-controlled Senate and the White House to overhaul the
nation's $10 trillion mortgage market.
Obama and his fellow Democrats in Congress have started the reform
process and are building bipartisan support to replace Fannie Mae
and Freddie Mac, but they want to ensure some government support for
housing remains.
A final bill could take years.
(Reporting by Margaret Chadbourn;
editing by Stephen Powell)
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