On November 15, President Obama nominated Joseph Smith, the North Carolina Commissioner of Banks, to be director of the Federal Housing Finance Agency (FHFA), which is charged with regulating Fannie Mae and Freddie Mac. Smith’s nomination was approved by the Senate Banking Committee on a 16-6 vote, but was ultimately blocked by Republicans, who took issue with the fact that Smith may be sympathetic to allowing Fannie and Freddie to aid underwater homeowners.
According to Reuters, Obama is thinking of sending Smith’s nomination back up to Capitol Hill:
U.S. President Barack Obama is leaning toward renominating Joseph Smith to oversee mortgage finance giants Fannie Mae and Freddie Mac, three sources familiar with the process told Reuters…The sources said the timing of a renomination announcement was unclear. Smith is likely to face an uphill battle again.
The Obama administration has been pushing Fannie and Freddie to write down loan principal (the total loan amount) for underwater homeowners (who owe more on their mortgage than their house is currently worth), much to the consternation of Republicans like House Financial Services Committee Chairman Spencer Bachus (R-AL). The GOP contends that Smith would allow Fannie and Freddie to participate in write downs, though he hasn’t publicly indicated such support.
The administration’s response to the housing crisis has, thus far, been underwhelming, and the economic case for loan write downs is a good one. As Tim Fernholz explained:
Many economists think that principal write-downs are key to finding some stability in the mortgage market and halting the on-going wave of foreclosures…It also makes plenty of economic sense to keep borrowers in a sustainable loan than taking a loss in default or a short sale. Postponing write-downs is a key problem for a financial sector that needs to reset, rather than pretend these losses don’t exist.
When it comes to housing policy, Republicans are currently coalescing around a plan that not only would do nothing to prevent foreclosures, but would actually undermine the housing market and potentially end the 30-year mortgage upon which so many families depend. If Obama should renominate him, will they continue to stand in the way of an FHFA director who may (or may not!) be okay with providing homeowners with some relief?