Wellie, we finally witness an exception that proves Krugman’s rule about hopeless partisan rancor. Republicans and quite a few Democrats gave the raspberry to Obama’s nomination of Mel Watt to replace Ed DeMarco as the head of the FHFA, which oversees Fannie and Freddie.
To give a bit of context: for DeMarco has become a favorite whipping boy of Obama stalwarts over his refusal to authorize programs to provide for modifications of principal for stressed borrowers. DeMarco has taken a narrow view of his role in the Fannie/Freddie conservatorship, that he needs to do everything to avoid losses. But the Administration and his allies have regularly taken to beefing about DeMarco to divert attention from their bank-friendly approach to the mortgage mess. As we wrote early last year:
But all of this noise about GSE principal mods is really a smokescreen. DeMarco has become the Administration’s favorite scapegoat as a way to divert attention from its refusal to get tough the banks in order to fix the housing market. Among the obstacles to a real estate recovery: a broken servicing model, in which servicers find it more profitable to foreclose than modify loans; second liens on bank books at inflated values; rampant chain of title issues; a huge overhang of foreclosures in progress.
If the Administration wanted serious principal reductions, they could have used the hundreds of billions of dollars available to them under TARP to do so. That was under its power and required no Congressional action. Instead of owning up to disasters like HAMP and FHA-Short Refi, they whine about DeMarco, Republicans in Congress, reckless homeowners, and once in a while, for show, they’ll say a few bad words about the banks that they continue to coddle. Just look at the conflicting messages: the banks are in such bad shape that they can’t be asked to write off second liens in full in the Administration’s mortgage settlement, yet they are deemed to be healthy by the Fed and are allowed to pay dividends rather than rebuild their balance sheets.
And consider the latest bank gimmie, as reported by the Associated Press (hat tip reader Deontos):
Banks participating in the Obama administration’s expanded mortgage refinancing program are able–and willing–to charge higher mortgage rates than normal, according to an analysis by Amherst Securities.
The investment firm points out that under the revised Home Affordable Refinance Program–often called as HARP 2.0–banks receive special benefits for refinancing their own loans, meaning that borrowers are likely to stay with the same lender if they want to refinance. As a result, banks have “tremendous pricing power” that they’re taking advantage of “by charging higher rates to HARP borrowers and…earning massive profits on originations,” Amherst concludes in the new research note…
Amherst suggests, however, that there’s a simple way for the administration to expand refinancing at more affordable rates: “Increase HARP refi competition by providing the same benefits on a different servicer refi.”
But despite the bending-over-backwards to the problem, Democrats pound on the “fire DeMarco” message when that isn’t a solution to their perceived problem.
The next headfake in this saga was widespread fauxgressive messaging about “firing DeMarco”. DeMarco is acting director of the FHFA. Simply firing him (which Obama could have done at any time) would have resulted in one of the deputy directors being elevated as a replacement. Guess what, all four are on the same page as DeMarco.
So the solution would be to install a director. That would require Senate confirmation unless Obama made a recess appointment. But in keeping with the fact that DeMarco was actually a very useful device for the Administration, Obama didn’t hazard a recess move when he might have gotten away with it (more than a year before the 2012 elections; DeMarco is well liked by Republicans, so a move too close to November was likely seen as giving the Republicans more campaign talking points).
But now the recess appointment track is out right now, thanks to an appellate court decision that not only invalidated three recess appointments but took the view that recess appointments were allowed only in such narrow circumstances as to effectively rule them out. The Administration is appealing the ruling to the Supreme Court.
So if Obama really wants to replace DeMarco any time soon, he’ll have to do it via having the normal approval process. And there might be reason to think Obama really, finally, did want a new FHFA head. But don’t kid yourself that the Administration has suddenly become solicitous about long-suffering homeowners. Remember it was DeMarco who launched 17 putback suits against servicers. The total exposure is $200 billion. That could have been enough to induce the Administration to get someone in who’d make tougher noises about helping homeowners but would settle those big nasty lawsuits on the cheap.
The choice of Mel Watt, a representative from
Bank of America North Carolina and a prototypical bank-friendlly Democrat, is an effort to go through the motions. This looks like a rerun of Obama’s nomination of Joseph Smith to head the FHFA, which was simply allowed to languish and Smith withdrew. Watt may distinguish himself by getting shot down faster. Consider this report from Politico last year:
WATT HOSTS BACKYARD SOIREES: Rep. Mel Watt and his wife, Eulada, hosted Day Three of four soirees they have planned this week on Wednesday in honor of the Congressional Black Caucus and retiring CBC member Edolphus Towns (D-N.Y.). Watt, who represents Charlotte, opened up his backyard for the event, holding it in a covered tent on the tennis court, according to a PI tipster. On hand to wish Towns well were K Streeters: Joyce Brayboy of Goldman Sachs; Merwyn Scott with the National Education Association; Hilary West with JPMorgan Chase; Paul Brathwaite with Podesta Group; Gina Adams with FedEx; Derron Parks with DaVita and Sanders Adu with Wells Fargo. Watt’s finale fete Thursday evening is expected to feature Minority Leader Nancy Pelosi, North Carolina Sen. Kay Hagan and other members of the House.
KC points out that Joyce Bradbury, now Goldman lobbyist, was Watt’s chief of staff for over a decade.
Watt also distinguished himself by taking the lead in trying to sabotage Audit the Fed. From Bloomberg:
Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.
The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today….
Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.
Watt also was missing in action during the JP Morgan “London Whale” hearings, and as the Charlotte Observer indicates, on pretty much everything of note on the banking front since Dodd Frank passed back in 2010:
As his fellow members of the House Financial Services Committee prepared to fire questions at JPMorgan Chase CEO Jamie Dimon over risky trades, Watt was in a meeting in another part of the House office building.
By the time he made it to the hearing room, he’d missed his chance to get in the questioning queue.
He left early, without speaking.
Watt, who played a primary role in crafting the Dodd-Frank financial reform law, has retreated into the background on banking issues since the law passed in July 2010.
At a time when banks have found themselves in political firestorms, Watt has made fewer floor speeches on banking and introduced fewer bills on the subject. And he hasn’t issued a single public statement on banking in the two years since Dodd-Frank passed.
Watt told the Observer that this was a conscious decision and a result of the committee’s polarization since Republicans captured control of the House.
The North Carolina paper points out the more plausible reason for Watt’s absence: not wanting to piss off Bank of America.
Watt’s tender concern for banks hasn’t earned him much in the way of friends among Republicans. As the Washington Post noted yesterday:
Republicans object to Watt’s support for a greater agency role in helping homeowners.
“I could not be more disappointed in this nomination. This gives new meaning to the adage that the fox is guarding the hen house,” Sen. Bob Corker (R-Tenn.), a member of the Senate Banking Committee, said in a statement.
Mark Calabria of the Cato Institute, a former Senate Banking Committee staffer, has argued that Watts does not have the “demonstrated understanding” of financial management or oversight, capital markets, and housing finance the position requires.
Now admittedly, some Democrats, such as Elizabeth Warren, are backing Watt. But with the odds of a Republican hold high, this nomination looks like a non-starter. And given that Watt would be highly unlikely to do more than make symbolic policy changes and would likely trade meaningful putback settlements for that, we should count ourselves lucky.