Counterparties: Neither a champion nor a frustration
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One day after a downright cheery report on the housing market, Barack Obama has moved to replace the widely-criticized head of the FHFA. Mel Watt, a Democrat and longtime presence on the House Financial Services Committee, has been nominated to replace Ed DeMarco, who’s been acting head of the agency that regulates Fannie Mae and Freddie Mac since 2009.
This wasn’t entirely unexpected — the trial balloon for Watt’s candidacy has been afloat since March. (It was reportedly down to Watt and economist Mark Zandi.) As head of the agency, DeMarco has been pilloried by critics for opposing principal reductions for struggling homeowners, a method that’s long been championed by housing reformers, the Obama administration and the Federal Reserve.
Just today, the Congressional Budget reported that a even small-scale principal forgiveness program could save the US government billions. As Felix wrote last July, DeMarco has seemed to oppose principal reductions on principle, arguing that slashing homeowners’ mortgage debt would be tantamount to a nation-wide breach of contract. (DeMarco has also suggested all this would end up costing taxpayers.)
Watt has publicly supported principal reductions, but his record isn’t terribly easy to categorize: As Nick Timiraos notes, while he pressed for support for low income borrowers, he also voted against pay cuts for Fannie and Freddie execs. Watt, who represents the Charlotte region, counts financial firms (hello, BofA) as some of his larger donors, but one consumer advocate says Watt has been “He is neither a champion nor a source of frustration”.
Matt Yglesias says everyone can find something to hate in Watt’s nomination. The housing industry, however, was supportive. Which doesn’t mean Watt will be confirmed. Edward Mills of FBR Capital Markets put it this way to Housing Wire:
Senate Republicans (who have the votes to block a nomination) will be extremely reluctant to support a candidate who has publicly backed principal reductions, has supported bankruptcy changes allowing for ‘cram-down’ on residential mortgages, and served on the House Financial Services Committee during the height of power of Fannie and Freddie (having accepted campaign contributions from both).
— Ryan McCarthy
On to today’s links:
The S&P report on the Brown-Vitter bill “shows how backwards things have gotten on Wall Street” – Matt Taibbi
“It probably won’t get passed, but its underlying premise cannot be dislodged from the Washington conversation” – Jesse Eisinger
And, of course, there are many more links at Counterparties.