Congressman Mel Watt defended himself at a Senate confirmation hearing Thursday from accusations he’s unqualified to head the federal agency that oversees mortgage giants Fannie Mae and Freddie Mac, and signaled he supports moving the housing finance industry back toward the private sector.
And in a significant difference from the policy of Fannie and Freddie’s acting regulator, Watt also said he might consider reducing borrowers’ principal on underwater mortgages.
President Barack Obama nominated Watt to head the Federal Housing Finance Agency in May, and his pick has drawn sharp criticism from some Republicans, who favor keeping acting director Ed DeMarco.
Sen. Bob Corker, R-Tenn., told Watt he doesn’t think the congressman is qualified to head the FHFA.
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“I really thought this position, because of the nature of it, this was a job that needed a real technician,” Corker said at the Senate Committee on Banking, Housing and Urban Affairs hearing. “If you were president, would you have selected you?”
Watt responded with visible indignation. He said he believes that his years as a lawyer in private practice dealing with real estate and his service in the House on various financial committees makes him qualified.
“A number of people throughout my life have questioned my qualifications to do things,” said Watt. “I’ve had it questioned time after time after time. And so it’s hurtful to have been doing... 40-plus years...and I’m the person designated out for ‘He’s not qualified.’”
“I can get somebody to do the technician part,” said Watt, of the job’s more arcane aspects.
In his opening remarks, Watt emphasized his Charlotte roots – “out in the country, but with a Charlotte, North Carolina address.” Watt reminisced about his family’s small, rented house west of the airport, in an area known as Dixie.
“Tin roof, holes in the floor, no electricity and no inside plumbing,” said Watt, 67. He fondly recalled the “family, food and the little country church that adjoined our front yard.”
He said he views housing as a basic right. “Having a place to live is basic. That’s true whether you rent or you own,” he said.
Watt, a Democrat, represents North Carolina’s 12th Congressional District, which includes much of Mecklenburg County and stretches past High Point. A UNC Chapel Hill graduate, he managed former Charlotte Mayor Harvey Gantt’s political campaigns and served in the state Senate before winning his congressional seat in 1992.
Senators from both parties praised Watt for his “American dream” life story. But he faced tough questions from Republican senators about his views on housing issues, including principal reduction. The FHFA’s acting director, Ed DeMarco, has earned praise from Republicans and opposition from Democrats by resisting calls to have Fannie and Freddie implement principal reduction to help underwater borrowers, those who owe more than their homes are worth.
“Are you prepared to commit right now that you will not implement principal reduction?” asked Sen. Pat Toomey, R-Pa.
Watt said he expects to be asked to look at principal reduction again, and said he would study the issue and make a “responsible decision.”
Watt said he would look at the issue from the perspective of protecting taxpayers from further losses as well as from the point of view of homeowners. He said fewer people are underwater now that housing values have rebounded.
Toomey also asked Watt about a 2003 statement he said the congressman made about private mortgage lenders, in which Watt said,
“Most of them do not really give an (expletive deleted) about poor people and whether they have housing.”
“Is that still your view?” asked Toomey. He questioned whether senators could trust Watt to lead a transition back to greater private-sector home lending.
Watt said the remarks had been the product of predatory lending practices he had seen at the time.
“Loans were being made to people based on incentives for profit rather than on their ability to repay,” Watt said. “They were taking advantage of them...There are circumstances in which the profit motive overtakes anything else.”
Sen. Mike Crapo of Idaho, the committee’s ranking Republican, also questioned Watt’s qualifications. He said the FHFA is a unique government agency that operates much like a private business and has tremendous sway over the U.S. mortgage market.
“The nominee must have the business strategies necessary to operate two multi-trillion dollar companies,” said Crapo.
Crapo praised acting director DeMarco, calling him an “apolitical regulator.” He said Watt’s nomination comes as part of a campaign to remove DeMarco, who has headed the FHFA since 2009.
If Watt is confirmed to head the FHFA, he could find himself in charge of phasing out Fannie and Freddie. The companies, which back the majority of U.S. mortgages, have been in government conservatorship since 2008. The federal government spent more than $187 billion to keep them from collapsing during the economic downturn.
A bipartisan group of senators introduced a bill this week that would wind down both government-sponsored mortgage entities over five years, along with the FHFA. A new federal mortgage insurance program would take their place, and would play a much smaller role in the housing market.
Watt said Thursday that he supports that approach, and the mortgage system needs to move toward the private sector as much as possible.
“The goal is basically to put you out of a job, to eliminate Fannie and Freddie,” said Sen. Jack Reed, D-R.I.
“I’d be delighted to make that happen,” said Watt. “Putting me out of a job would mean we’ve gotten through this transition.”
But Watt emphasized that the future of mortgage lending is far from clear, and that he thinks Fannie and Freddie have a role to play for now.
“I’m hoping we can incentivize as much of this business going back to the private sector as possible,” said Watt.
After the hearing, Watt said he believed he had a good chance at confirmation, but acknowledged there are still hurdles to clear.
“I’m hopeful that I will get confirmed, but that’s out of my hands,” said Watt.
Watt said the banking committee could vote on whether or not to move his nomination forward next month, in between the July 4 and August recesses. Obama’s first pick to fill the FHFA post, North Carolina Bank Commissioner Joe Smith, withdrew in 2011 after Republican opposition.
The hearing had lighter moments as well. Sen. Elizabeth Warren, D-Mass., said she thought Watt was a “strong choice” to lead the FHFA.
“If I could, I’d vote for Congressman Watt twice,” she said.
“You might need to do that,” quipped Watt, drawing laughs from the crowd.
(The McClatchy Washington Bureau contributed)