By Margaret Chadbourn
WASHINGTON, June 20 (Reuters) - President Barack Obama's pick to oversee mortgage financiers Fannie Mae and Freddie Mac will face stiff resistance in the Senate confirmation process but the White House could still win if he is rejected by labeling Republican senators as obstructionists.
Obama nominated Democratic Representative Mel Watt of North Carolina to replace Edward DeMarco as head the Federal Housing Finance Agency on May 1, and many Republicans were quick to make clear they did not like the nomination.
They say the 20-year veteran of the House of Representatives lacks the technical skill to oversee the housing finance market. And in an era of bitter partisan battles over nominations, they are unhappy that Obama picked a career Democratic politician for the high-profile regulatory job.
Democratic aides concede that because of Republican procedural hurdles Watt likely will need 60 votes - rather than a simple majority in the 100-seat Senate - to be confirmed. They also concede that with 41 Republicans in the Senate, Watt could fall short of 60 votes.
"Watt's probability of getting confirmed is still tied to much larger issues in the Senate and overall confirmation fights," said Jeb Mason, a managing director at the Cypress Group, an investment consulting and research firm.
If the nomination fails, White House strategists could portray Republicans as obstructionists blocking an appointment critical to the health of the housing industry, given that Fannie Mae and Freddie Mac own or back about half of all U.S. home loans. Confirmation of Watt allows the administration more flexibility to work with the independent regulator on goals that it has failed to clear with DeMarco, who has been acting chief since 2009.
Some analysts wonder whether the White House has already all but conceded defeat. "I don't think that the White House is putting the full court press on for Watt," said Brian Gardner, senior vice president at Keefe, Bruyette & Woods Inc.
The White House declined to comment.
Republicans blocked Joseph Smith, Obama's first nominee for FHFA chief, and he ultimately withdrew from consideration. Republicans have been happy with the status quo while many Democrats have assailed DeMarco for not doing enough to help troubled borrowers.
DeMarco has resisted the Obama administration's efforts to persuade him to adopt anti-foreclosure policies to help slash mortgage debt for borrowers.
"The question for Republicans is how many nominees do they want to oppose," said Mason, who served in the Treasury Department under President George W. Bush. "My sense is that Watt doesn't rank as a high priority for a broad coalition of Republicans as other nominees. They have larger fish to fry."
Watt's confirmation hearing before the Senate Banking Committee is scheduled for next Thursday. The panel's Democrats are expected to unite behind him, ensuring enough votes to send the nomination to the Senate floor for final consideration but Watt remains a tough sell to Republicans who say he is unqualified.
"Congressman Watt is more knowledgeable on these issues and more committed to putting housing finance on sound footing than folks seem to realize. As long as he can show that, I think he'll do well," said Jim Parrott, a senior fellow at the Urban Institute, who until January was a top adviser at the White House on housing finance.
WIND DOWN FANNIE AND FREDDIE?
Watt has been an advocate for predatory-lending reform, has promoted affordable housing and has pushed for access to credit for minorities and low-income borrowers.
If confirmed as FHFA director, he is expected to clear the way for Fannie Mae and Freddie Mac to write down principal on loans they back, a long-sought Obama administration goal that DeMarco has blocked.
But given the robust housing recovery, that goal may not be as high a priority for the White House as it once was.
Fannie Mae and Freddie Mac were seized by the government in 2008 as the housing crisis threatened their solvency. They have received $187.5 billion in taxpayer funds to stay afloat and have sent back $65.2 billion to the Treasury in dividends.
Both Democrats and Republicans want to shut down the companies but they differ on how large a role the government should continue to play in the mortgage business.
"If he is confirmed there would be early action on principal reduction and more done on refinancing," said Phillip Swagel, an economist and professor at the University of Maryland. "He will likely be more proactive in opening access to credit, which is also synonymous for adding more risk to the government."
Watt's supporters say his confirmation would position the regulator to work with the administration to lay groundwork for an overhaul of the housing finance system.
"He is a qualified individual who will be more reflective of the Obama team," said John Taylor, president of the National Community Reinvestment Coalition. (Reporting By Margaret Chadbourn; Editing by Bill Trott)