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Mirabile Dictu! Republicans and (Some) Democrats Agree, Diss Obama Pick Mel Watt for Head of FHFA

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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 Watts, 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.

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44 comments

  1. TheMomCat

    The minute I heard that Obama had nominated him, I knew he would be even worse than DeMarco. Thanks for the confirmation that my instincts about Obama’s nominees are still on target.

    1. jake chase

      Other than Nancy Pelosi, I have never heard of Mel Watt or any of the people mentioned as attending the soiree discussed above. I’m only guessing, but could all of them be Black?

      Gosh, can’t we trust anyone any more?

    2. JGordon

      It seems to me that Demarco is doing an excellent job of fulfilling his job primary duty–preserving as much taxpayer money as possible. In other words, he’s at least honest, which is a tremendous advantage for him over anyone Obama is going to replace him with. What’s not to like about that?

      1. LucyLulu

        DeMarco has a job of controlling losses to the GSE’s. In this he has failed by not using the option under HAMP to write down mortgages, thus fueling the continued high number of homeowner defaults. The CBO has issued a report, just released, that evaluated the effect of using the option under HAMP to write mortgages down to 100% of the home’s assessed value. It would save the government (and thus taxpayers) $2.8 billion over current policy. It would also reduce the number of foreclosures, allow borrowers to refinance or sell their homes, provide support for home values, and serve to stimulate economic growth.

        CBO Report:
        http://www.cbo.gov/sites/default/files/cbofiles/attachments/44114_WorkingPaper-OptionsPrincipalForgivenesl.pdf

  2. Conscience of a Conservative

    DeMarco has done a fantastic job. It would really be a shame to see a director installed with the intention of undoing the progress.

    And as far as big banks extracting huge profits from under-writing mortgages and delivering the loans to pools? That’s more a function of lack of competition in the mortgage space than any policy championed by Demarco. Break up the the big banks and create a a more level playing field and you’ll see more aggressive pricing.

    1. On the public dole at George Mason

      Right. Principle reduction would have helped millions of people in this country who don’t have stable housing. Please go fuck yourself.

    2. AbyNormal

      “lack of competition” where we’ve heard this before?
      all policies have Strengthened our banking hub…under competition ‘brain drain’ protection…they’re not going Anywhere!

      Are you even conscience when you Super Size your Orders?

  3. Benedict@Large

    DeMarco is going because he refused to let Geithner dump a new load of the TBTF’s toxic crap on F&F. Obama and Geithner tried to dress it up by saying it was about principle writedowns, but anyone who’s looked at the Obama record on writedowns will note that even from the start (the Nov 2008 Paulson offer, per Barney Frank), Obama has NEVER endorsed writedowns. Once again, Obama is trying to hide behind someone else’s skirt.

    1. The Rage

      wrong. all the “toxic” stuff was moved in late 2008 and that was that. there was nothing else to “move”.

      Demarco is going because he is a banking industry whore and nobody likes him. That is why feces will replace feces.

    2. LucyLulu

      Chris Hayes did a piece on this tonight on MSNBC. He had Spitzer, Elijah Cummings, and Jim Carr. Spitzer disagreed, saying Obama had consistently blocked writedowns but when Jim Carr talked about Obama’s actions since last year, he seemed to concede the administration had changed their tune (now that “point of no return” has been reached). Cummings, who has been consistently in the camp of homeowners, endorsed Watts’ nomination with high praise and thinks that he will be confirmed though there will be a fight.

      All in all, a different perspective is presented.

      http://video.msnbc.msn.com/all-in-/51756405#51756475

  4. allcoppedout

    We don’t do the nomination thing over here (UK). We seem to like our bureaucrats faceless. It’s hard to know whether your more open process is better. I have to say we’d all be better off with a qualification list and sorition. We are generally presented with a fete accompli over here, but at least this spares us the phony debate over the appointments.

    1. NotTimothyGeithner

      These aren’t bureaucrats. The Parliamentary system is a bit different than the modern U.S. system. Usually, legislators in the UK, elected officials, do these jobs where the U.S. system has some phony extra-constitutional nomination fight.

      These nomination fights are closer to the negotiations before elections over what slate of candidates a party should run or the campaign platform because many of these nominees will have sizable authority.

      This is a less open process because we the voters don’t have an inkling of what will be done until after the election. At least, election night in the UK would give you a reasonable idea of who will be in a position of authority.

      Obama and the Democrats created much of this problem when they chose not to get rid of the filibuster in 2009, but of course, then they wouldn’t be able to blame Republicans for their pro-corporate agenda.

  5. Jim Haygood

    Obama’s nomination of Watt demonstrates a clear intention to maintain the failed, politicized status quo of the GSEs and their regulator.

    It also exhibits a severe lack of imagination. Watt seems to have been chosen in the image of Franklin Raines, who headed Fannie Mae when its accounting scandal came to light in 2003. Raines was sued by the then-regulator, OFHEO (pronounced OFAY-O), and ended up settling.

    How droll it would be, as a member of the committee that will vet Watt’s nomination, to solemnly intone, ‘I knew Franklin Raines, Congressman Watt. And you’re no Franklin Raines!

    1. banger

      Warren is a U.S. Senator representing her state. The Senate is about deals and deals within deals all made in private. Warren may be opposed to this or that nomination or policy but she has to go along to get along to get something she wants. Everything is about deals–maybe she’ll use that support on what she thinks is a minor issue for some support from the Administration for something more substantial–this is the way it is now and has always been in Washington.

      The fact is that powerful players usually get their way. The banks are powerful because the left believes politics is about competing sermons to the people–no it’s not as I repeat time after time–it is the application of force, i.e., the ability to help friends and punish enemies–you want power in Washington–then organize and bring that baseball bat to the negotiating table.

        1. banger

          Well, what would you say the left is doing or, better, what do you describe as the left? I don’t see any hard-headed serious action by anyone who is self-described as left or progressive.

          1. Massinissa

            As a Marxist, I may be biased, but I dont think we have had a ‘left’ since the last red scare in the 50s.

            If you want to be a bit more charitable, we could say maybe the early 70s with like McGovern or something, but certainly not more recently than the early 70s have we had anything approaching a true left of any sort, even a relatively honest Bourgeois sort. All we have had are center right ‘democrats’ pretending to be the opposition to the far right.

    1. Paul Tioxon

      Go along, to get along. If you scold your own party on an hourly basis as the last best hope of the high minded statesmanship, you will be collecting a nice salary and perks with a staff and get re-elected until death or retirement. That’s all. When the process used to work before the GOP mutated into the party of no, PON, you traded back and forth on the little things which don’t mean anything much in the larger scheme of things, AND I DO MEAN SCHEMES!, and built up favors and good will, social or political capital for the really big things. This is such a minor story that it is indicative of little more than in side the belt way trivia. If it wasn’t for the connection to the banking disaster and foreclosure mess, it wouldn’t show up as even a link on this site. The Big Macs are ground zero in the housing finance nexus. But, not much happens there, it is now as paralyzed as the rest of DC. Hagel and Kerry were much too important to fool around with and got in. This is such small potatoes politically that anyone’s full throat support or vehement opposition will never show up on liberal or conservative voting scorecard for anything. It is just stuff between politicos where you go along to get along with one another.

  6. dolleymadison

    Here in North Carolina everyone knows Mel Sells – OUT

    After championing Dud-F#ck he suddenly clammed up in July 2010 – his silence (coincidentally) coinciding with huge campaign donations (hush money) from home-town heroes BOfa and Wells Fargo.

    He said his failure to EVEN ATTEND meetings of the House Financial Services Committee, of which he is a senior member, was republicans fault – cause, you know, they “aren’t listening.”

    And to add insult to injury he was one of the traitors who introduced SOPA – designed to stop “online piracy.” (more like designed to AID online piracy by corporations and government).

    His top donors are banks, finance companies, the Securities industry, insurance companies and hedge funds.

    I know you guys hate Libertarians – but tell me again the difference between Dems and Pubs?

  7. biskit88

    Hope you get better soon banger. The “baseball bat” you spoke of, surely you meant money sack, didn’t you?

    1. Mr. Jack M. Hoff

      Absolutely. And in a plain brown wrapper, and under the table of course.

    2. banger

      Er…just a metaphor. But bags of money are not necessary. There are all kinds of actions that could be taken that would hurt some part of the oligarchy–chief of which is organized and targeted boycotts not just to take business away but to inspire fear, if for no other reason than the idea the left could actually organize and ACT (what a concept!!!!). For example, you would target, not BoA or someone like that but a smaller more vulnerable evildoer who you can bring down as an example to the others.

      1. traveler

        Boycotts are so doable and yet they’re rarely undertaken. They’re one of the few tools we have at our disposal which can put some hurt and anxiety on corps and yet – nada. Never have figured that out.

  8. Jimbo

    Very recently it was widely held that George W Bush was the worst President in American history. Which is a mistake; he is merely second worst, second most destructive. By a mile.

  9. Jackrabbit

    This nomination seems such a contrast with that of Mary Joe White that it is easy to dismiss it as a ploy.

    The perception is that MJW is a great prosecutor that will clean up Wall Street while Watt is a complete, and unqualified, lacky that will do the bidding of Wall Street.

    How could Obama get it so right and then so wrong?

    1) MJW is probably the White Knight she seems/has been out to be. She will prosecute smaller firms, mostly but she supports the TBTF status quo.

    2) Watt’s nomination _may_ be just a straw man that rewards his service to the industry and lets Republicans look tough, while easing the way for Obama’s next nominee – who will have years of industry experience.

    -
    But I generally don’t think Obama plays games with nominations that are important to Wall Street.

    I’m not so sure that Watt won’t be confirmed. How many people are willing to bend so completely to the Wall Street’s will? And accept ridicule and denunciations for doing so?

    While MJW is ‘sold’ as an Obama-like transformational figure for the SEC (the very embodiment of the change that is needed), what the Street wishes to see from the next FHFA head may require someone who is more Bush-like useful idiot. In that case, the hue and cry from Republicans may just be horsetrading.

    Lastly, the perception that Republican’s are really, really unhappy with this nomination may cause the left to mute their criticism and/or convince some to support a nomination that appears to be ‘doomed’ anyway.

    If such a ‘headfake’ were to occur, Obama would appear blameless. How could he know the Republicans (which he can’t control!)* would change their mind?

    -

    * Obama’s complaint at his recent news conference.

    1. Yves Smith Post author

      No, you miss the issue.

      DeMarco is a dedicated public servant. Old school. I’ve heard it from lots of people. He was warning about the housing bubble in 2004 and took LOTS of heat for it. So he has a thick skin.

      The Rs love him because he is taking the mandate to wind down Fannie and Freddie while maximizing taxpayer returns seriously. The Rs hate Fannie and Freddie. So they’ll bar pretty much any replacement. The Dems want to use Freddie and Fannie to continue to juice the housing market, so they’d try to read the conservatorship terms much more generously. So anyone who might do that, which is what Obama would want in an appointment (that plus shutting down the $200 billion of lawsuits on the cheap) will be nixed by the Rs, who can and would put on lots of holds in the Senate.

      Whether you agree with his view or not, he’s not refusing to do principal mods out of ideology, it’s out of his reading of how the conservatorship is supposed to work.

      1. Jackrabbit

        I’m not missing that. I’m just changing the emphasis from R pleasure with DeMarco to: what does Wall Street want? and how much do they want it?

        Those who hesitate to accept whatever Obama is shoveling will entertain the possibility that the left/Democrats that are being setup to ignore/support a nomination that the Republicans will ultimately (surprise!) be ‘convinced’ to support.

        Watt seems to be everything that Wall Street could hope for from the next FHFA head.

        1. Jackrabbit

          That should be: …”whatever Obama is shoveling today…”

          ===

          Any Yves, I don’t mean to imply that you accept what he is shoveling, so please don’t take it that way. There are degrees of skepticism.

      2. Johnny Fraudclosure

        This idea of protecting taxpayers is a lie. By refusing to write down principle he has essentially ensured that taxpayers will be subsidizing deemed far more important. You’ve been completely dishonest, along with your many cohorts, for about as long as your blog has discussed the housing bubble. Please take the time and explain the ugliness behind not allowing principle reduction, that will give folks a fair idea of the purpose of your blog.

        1. Yves Smith Post author

          You’ve just revealed you don’t read this blog, despite copping a ‘tude as if you do.

          I’ve repeatedly argued in favor of principle reduction. And your comment is a reading comprehension fail. I said DEMARCO believes that principle reduction reduction conflicts with his mandate. I’m not endorsing his view, I’m saying he comes by it out of his reading of his obligations, not out of cronyism to servicers.

          1. The Rage

            Demarco and Watt are the same guy. There in nothing “conflicting” about Demarco. Wall Street doesn’t want the principle reductions and he won’t give them.

            Whole post is self-serving drivel.

      3. LucyLulu

        And the Republicans love him because his refusal to do principal writedowns plays into their meme about avoiding “moral hazard”.

        I couldn’t agree more that DeMarco has high principals and takes his role as protector of the taxpayer’s wallet, as he sees it best performed, very seriously. I’ve never seen even a hint that he was serving any interests other than those he was appointed to serve.

  10. rob

    As someone living in north carolina,I would have to say mel watt is a useless bag of manure.I totally agree he is a democrat,that is a useless distinction from other corporate shills called republicans.Obama probably also likes him because he is a black man,who has no allegiance to other black people.But pretends he does for votes.When these are the “democrats”,as if there is a difference between them and the body of “republicans”,this is why people are confused.These are just jive-ass money-grubbing lying hyperbolic blowhards who will sell anything for campaign contributions.They would lie to anyone and everyone.They do it everyday.This schmuck is “obama material”,for sure.
    And considering the other appointment announcements in the last couple of days:
    wheeler;the venture capitalist,lobbiest for wireless communications companies,being picked to head the FCC(no conflict of intrest there), or the lady heiress to the hyatt hotel chain…another billionaire at the trough ,bundling campaign contributions for obama….whoopie..can it get any better…I bet it will.

    1. DolleyMadison

      “These are just jive-ass money-grubbing lying hyperbolic blowhards who will sell anything for campaign contributions.They would lie to anyone and everyone.They do it everyday.This schmuck is “obama material”,for sure.”

      No kidding – don’t forget about Anthony Fox…

  11. telee

    What about billionaire Penny Pritzker for Commerce Secretary? Perhaps that will be covered in tomorrows addition.

  12. Jackrabbit

    In the early morning of May2, Politico was reporting that Watt’s nomination would probably not be successful. By the afternoon, they had changed their tune: reporting that it was likely.

    So the basis for this Post appears to have changed.

    It appears that the left has rallied behind Watt. They are sold on ‘principal reduction’ as a way to help struggling borrowers and the economy. “Mel understands what went wrong” in the sub-prime crisis Obama says, code words for: this is not about blowing another bubble. So what is it about?

    Less than a month ago (April 8), a judge said that FHFA’s legal actions against Banks can go forward. Wall Street faces tens of billions of dollars of losses, and if FHFA is successful, others may follow.

    Watt has supported measures against predatory lending. That is probably why Warren is supportive.

    With Mel at the helm, struggling homeowners may see _some_ relief but Banks will also be big winners (perhaps the biggest winners).

  13. season episode

    Hey there! I could have sworn I’ve been to this blog before but after checking through some of the post I realized it’s new to me.
    Anyways, I’m definitely glad I found it and I’ll be bookmarking and checking back frequently!

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