Christopher Gregory/The New York TimesPresident Obama nominated Representative Melvin Watt, left, on Wednesday to lead the Federal Housing Finance Agency. At right is Tom Wheeler, nominated by the president to head the Federal Communications Commission.

President Obama’s overhaul of the mortgage market has been a long time coming.

But he took a significant step forward on Wednesday, announcing his intention to nominate a new director for an agency that plays a crucial role in the housing market.

The president tapped Representative Melvin L. Watt, a Democrat of North Carolina, to become the new director of the Federal Housing Finance Agency. Mr. Watt has advocated for strong measures to provide relief to struggling homeowners, including reducing how much borrowers owe on their mortgages.

“Mel understands as well as anybody what caused the housing crisis,” President Obama said on Wednesday. “He knows what it’s going to take to help responsible homeowners fully recover.”

Still, Mr. Watt’s nomination will most likely inflame long-running political battles over how much the government should do to make mortgages available and support homeowners. Most immediately, Republican senators opposed to Mr. Watt’s housing stances might try to hold up his confirmation.

“I could not be more disappointed in this nomination,” Senator Bob Corker, Republican of Tennessee and a member of the Senate Banking Committee, said in a statement.

As director of the housing agency, Mr. Watt would oversee Fannie Mae and Freddie Mac, the two taxpayer-owned mortgage finance giants that have provided enormous support to the housing market since the financial crisis of 2008. They guaranteed two-thirds of all the mortgages made last year.

The Obama administration wants to reduce government involvement but has made almost no big moves in that direction. Some critics question its resolve to scale back the role of Fannie and Freddie, which received one of the biggest bailouts of the financial crisis. They say Mr. Watt’s nomination looks like tactical maneuvering, designed in part to placate progressives in Congress who say the president has done too little to help homeowners.

“It seems like a political move when a substantive one is needed,” said Phillip L. Swagel, a professor at the University of Maryland School of Public Policy. Mark Zandi, an economist at Moody’s Analytics who has focused on housing, was also a candidate to lead the housing agency. Mr. Zandi, “seemed to be a perfect nominee,” said Mr. Swagel, who was an assistant secretary for economic policy under Treasury Secretary Henry M. Paulson Jr.

Consumer advocates are upset that Mr. Obama did not long ago remove Edward DeMarco, the current head of the Federal Housing Finance Agency. He effectively stopped Fannie and Freddie from cutting loan balances for stressed homeowners. Last year, Mr. DeMarco argued that such a program “would not make a meaningful improvement in reducing foreclosures in a cost-effective way for taxpayers.”

Reducing mortgage balances could be the issue that draws the most scrutiny for Mr. Watt during the confirmation process.

Given the level of controversy around this policy, some mortgage market analysts questioned on Wednesday why the White House had nominated someone who has identified so closely with it.

But Gene B. Sperling, an assistant to the president on economic policy, said the administration stood behind Mr. Watt’s support for cutting mortgage balances. “That’s our position, and we’re not going to disqualify someone for agreeing with us,” he said.

In an interview, Mr. Watt said that, as director of the agency, he would be obliged to take into account the risk of losses to taxpayers from writing down mortgages.

“My role would be to look at this from all sides, from the homeowner’s perspective and the taxpayer’s perspective,” he said. “There are a lot of things I might have to approach differently as a director of this agency.”

Those in favor of cutting mortgages received some support on Wednesday. The nonpartisan Congressional Budget Office released a study showing that reducing the amounts borrowers owe could actually save taxpayers money by reducing the chance underwater homeowners would default and end up in foreclosure, thus causing losses to Fannie and Freddie, which own or guarantee more than half of all residential mortgages. But other analyses suggest that the approach is not a silver bullet. About one-third of borrowers who had their mortgage balances reduced by more than 20 percent went back into default within two years, according to a study by Fitch Ratings.

Despite the mortgage relief questions, Mr. Watt may still gain support in the Senate for his nomination. He is well known in Congress and sits on the powerful House Financial Services Committee. Some Republicans may vote for him.

“Having served with Mel, I know of his commitment to sustainable federal housing programs and am confident he will work hard to protect taxpayers from future exposure to Fannie Mae and Freddie Mac,” Senator Richard Burr, Republican of North Carolina, said in a statement.

While Mr. Watt is known for promoting lending to low-income and minority borrowers, he is not considered unfriendly to banks. Financial firms and insurers are among his biggest donors, in no small part because Charlotte, part of which is in Mr. Watt’s district, is a banking center.

Still, many members of Congress and analysts are eager to reduce the government’s role in housing, and feel Mr. Watt may not push hard enough to curtail the activities of Fannie and Freddie.

“It’s coming up on five years and nothing has happened,” said Edward Pinto, a resident fellow at the American Enterprise Institute.

But Mr. Watt says he’s firmly behind the administration’s plans to have the government largely withdraw from the housing market.

“I’ve indicated in committee that I am committed to finding a new model, and that model includes winding down Fannie and Freddie,” he said. As director of the housing agency, “I’d be ideally situated to facilitate that.”

Should Mr. Watt fail to win Senate confirmation, the White House could name him as a recess appointment.

Article source: http://dealbook.nytimes.com/2013/05/01/a-mortgage-agency-pick-is-likely-to-cause-conflict/?partner=rss&emc=rss