WASHINGTON (Legal Newsline) -- President Barack Obama announced Wednesday that he plans to nominate a new director of the Federal Housing Finance Authority.
The FHFA is the agency that manages Fannie Mae and Freddie Mac following the 2008 financial crisis.
Obama's pick for FHFA director is U.S. Rep. Melvin Watt, D-N.C.
Watt has served as a Congressman since 1993 and has served for all of his 20 years as a member of the House Financial Services Committee, which oversees housing policy.
"In that capacity, Mel has led efforts to rein in unscrupulous mortgage lenders," the President said Wednesday afternoon. "He's helped protect consumers from the kind of reckless risk-taking that led to the financial crisis in the first place. And he's fought to give more Americans in low-income neighborhoods access to affordable housing."
Obama continued, "Mel understands as well as anybody what caused the housing crisis. He knows what it's going to take to help responsible homeowners fully recover."
The President's announcement comes less than two months after a group of nine state attorneys general sent a letter to him and various congressional leaders calling for the agency's acting director, Edward DeMarco, to be replaced.
The attorneys general argued in their March 15 letter that under DeMarco's leadership, Fannie Mae and Freddie Mac have been a "direct impediment to our economic recovery" by the continued refusal to give principal relief for struggling homeowners.
The attorneys general included California's Kamala Harris, Delaware's Beau Biden, Illinois' Lisa Madigan, Maryland's Doug Gansler, Massachusetts' Martha Coakley, Nevada's Catherine Cortez Masto, New York's Eric Schneiderman, Oregon's Ellen Rosenblum and Washington's Bob Ferguson.
"We have worked tirelessly, along with our federal, state and local partners to develop a multi-pronged approach to dealing with the foreclosure crisis. Fannie Mae and Freddie Mac should be among our partners in this effort, and leaders in the arena of loan modification best practices," the attorneys general wrote in March.
"Instead, they have been an obstruction. We believe that until new, permanent leadership is named to the FHFA, they will continue to stand as a roadblock to comprehensively addressing the foreclosure crisis."
In their two-page letter, the attorneys general argued that principal write-downs are a central component of a nationwide mortgage settlement reached last year, and continue to bring meaningful relief to distressed borrowers, spurring the nation's economic recovery.
In February 2012, 49 state attorneys general and federal officials reached a deal with five banks -- Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., Ally Financial Inc. and Bank of America Corp -- worth $25 billion
The agreement, which institutes new protections for homeowners and nationwide reforms to mortgage servicing standards, only covers those mortgages held by the five banks, not Fannie Mae or Freddie Mac.
Principal reduction is a form of loan forgiveness that would help "underwater" borrowers whose mortgages are worth more than their homes.
The attorneys general said the FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is "not supported by reality."
The agency's current policy actually reduces the value of its holdings portfolio, the coalition argued.
"It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that lets families keep their homes than a portfolio of non-performing $250,000 mortgages headed toward default," they wrote.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.