Who is Mel Watt?
On May 1, President Obama nominated Rep. Mel Watt (D-N.C.) to be the director of the Federal Housing Finance Agency, the conservator for the mortgage giants Fannie Mae and Freddie Mac.
These two entities together currently back a large majority of new mortgages and hold or guarantee about half of all U.S. mortgages. Like other entities immersed in the mortgage market, Fannie and Freddie suffered great losses in the mortgage meltdown and were taken over by the federal government at the end of the Bush administration in September 2008.
Watt could be a key figure in the late stages of the mortgage crisis and in redefining the role of Fannie Mae and Freddie Mac going forward. So who is this eleven-term congressman and what does he care about most?
Probably the most important points to stress are these: He rose from humble beginnings through the meritocracy and is a Yale-educated lawyer who likes to immerse himself in the facts. He is broadly respected at home in Charlotte, N.C., and represents a safe district where he has biracial support. He carefully listens to the financial services industry, a major player in his community, and one that has supported his campaigns. Most important of all, he has made working for the economic well-being of African Americans his life’s work, whether as a lawyer in private practice representing minority businesses or as a lawmaker seeking to shore up consumer protection, particularly to strengthen the legal basis for challenging predatory lending, often used against racial minorities and other vulnerable populations.
A potential replacement for Edward J. DeMarco
If confirmed, Watt would replace Edward J. DeMarco, acting director of FHFA, which has never had a permanent director. DeMarco, who is a civil servant, has stood in the way of proposals to have Fannie and Freddie write down principal on some underwater mortgages to make them better performing and give nominal owners more of a stake in their homes, which would also help to stabilize communities in areas hardest hit by the mortgage crisis. As it happens, the same day that Watt was nominated, the Congressional Budget Office issued a report concluding that principal write-down would have modest benefits for taxpayers while also slightly reducing foreclosures and delinquencies and slightly increasing economic growth.
Watt faces a difficult Senate confirmation battle, but even if that process bogs down, he could become the FHFA director by recess appointment.
What is Watt’s position on principal write-down and other big issues for FHFA?
In an interview with a Wall Street Journal blog last week, Watt said he does not have a position on principal reduction as potential FHFA director. He said he needs to get inside the agency and see the information that it has before he could take a position. He acknowledged that he has favored principal reduction as a congressman but said that was because he was “advocating for a different constituency.” He also said that, “It might be an issue whose time has already passed.”
In general the WSJ interview portrays Watt as trying to avoid controversy, not surprising for a high-level nominee awaiting confirmation hearings. On the question what should become of Fannie and Freddie, he said, “There is general—almost unanimous—consensus that we should move as much of this back into the private sector as quickly as can be done.” He also said that the transfer of mortgage holdings back to the private sector should be “without an explicit or implicit government guarantee,” adding, “But there are constraints to doing that, and we have to be very careful about how we do it.”
He defended himself against charges that he did not pushed for tighter regulation of Fannie and Freddie, saying, “I was the first person in Congress to file an anti-predatory lending bill. It was four to six years before the financial services meltdown. We actually got to about the same place in Dodd-Frank.” Watt was an active proponent of Dodd-Frank, including the new Consumer Financial Protection Bureau.
He was very conciliatory toward Sen. Bob Corker (R-Tenn.), who reacted to the Watt nomination by saying, "I could not be more disappointed in this nomination. This gives new meaning to the adage that the fox is guarding the hen house. The debate around his nomination will illuminate for all Americans why Fannie and Freddie failed so miserably."
Watt responded, “I’m looking forward to going to sit with Sen. Corker . . . I can understand how he would raise those concerns [about Watt’s position on regulating Fannie and Freddie]. If I were in his position, I might be expressing the same concerns. I will encourage him to look at my record . . . .”
Up through the meritocracy
Mel Watt is a product of the meritocracy. Born in 1945 at the beginning of the Baby Boom, he grew up in Dixie, a community outside of Charlotte, N.C., in a house without running water or electricity. He went on to earn a B.S. in business administration in 1967 from the University of North Carolina, graduating Phi Beta Kappa and also as the top student in the business school. He went directly on to Yale Law School, where he was a published member of the Yale Law Journal. He graduated in 1970.
A community and family man
Watt returned to Charlotte right out of law school and practiced law for 22 years in a general practice firm with a civil rights focus. He served as president of the Mecklenburg County Bar Association and in leadership roles in many community organizations. In his law practice, he focused on minority business issues and economic development. He also was a small business owner. He served one term in the North Caroline Senate in 1985-86, but he decided against pursuing further elective office until his two sons had graduated from high school. His sons Brian and Jason both graduated from Yale and went on to earn graduate degrees.
His wife Eula Paysour Watt is an educator.
He was elected to Congress in 1992 from North Carolina’s 12th congressional district. He is a member of the House Judiciary Committee, serving as ranking member of the Subcommittee on Intellectual Property, Competition and the Internet. He is also a member of the House Financial Services Committee, serving on the Subcommittee on Capital Markets and Government Sponsored Enterprises and the Subcommittee on Financial Institutions and Consumer Credit.
Since 2004, he has focused on the problem of predatory lending. After the mortgage crisis, he worked to include predatory lending provisions in the Dodd-Frank Act and was part of the successful push to enact that law, which also created the CFPB.
“He's someone that can work with the industry well," said Michael Calhoun, president of the Center for Responsible Lending, a nonprofit advocacy group for borrowers. Mr. Calhoun said banks had worked frequently with Mr. Watt during the Dodd-Frank financial overhaul.
Race and Watt’s career
Recent research has stressed that racial minorities fared the worst in the mortgage crisis, losing much of their household wealth. Watt has a long history of concern for the economic well-being of racial minorities, for example by focusing on minority business issues in his law practice and the problem of predatory lending as a congressman.
Watt’s seat in Congress is safe on the basis of a coalition that crosses racial lines. His toughest re-election campaign was in 1998, when the African-American share of his district had shrunk to 36%. He won with 56% of the vote in the district and has not faced a serious challenge since. In November of 2012, he won with 79.63% of the vote. As of the 2010 census, his district—the most gerrymandered in the United States--was 51% minority.
He is a life member of the NAACP. He was a longtime supporter of Harvey Gantt, the first black mayor of Charlotte who failed to win election to the U.S. Senate in two tries. Watt managed city council and mayoral campaigns for Gantt in the 1980s and his 1990 U.S. Senate campaign.
In 2005-2006, Watt served as chairman of the Congressional Black Caucus and led an effort to open a dialogue with President George W. Bush, leading to a 25-year extension of the Voting Rights Act but little other common ground despite some promising initial signs, such as Bush including several CBC proposals in his State of the Union address.
Although Watt served as a sounding board for then-Senator Barack Obama when the latter first considered a presidential run, Watt doubted that the nation would elect a black president. He backed former Sen. John Edwards of North Carolina, but after Edwards’ early primary losses and suspension of his campaign, Watt endorsed Obama, prior to the North Carolina primary.
In the period right before the enactment of the Dodd-Frank Act, many congresspersons engaged in fund-raising from affected interests, and Watt was among five Republican and three Democratic members who were investigated. Watt held a fundraiser with financial firms and then withdrew support for a provision that would have put autodealerships under the jurisdiction of the CFPB.
No charges were brought, but Watt was evidently angered by the investigation and sought unsuccessfully to cut the funding of the Office of Congressional Ethics. Some called this episode disgraceful, while others said the office had disproportionately targeted African-American representatives.
How liberal is Watt?
He is ranked by the National Journal as the 45th most liberal member of the House on the basis of his 2012 voting record. There were 191 Democrats as of 2012.
Some support from beyond the liberal fold
Watt represents Charlotte, a major banking center and home base of Bank of America. Top donors to Watt’s political campaigns over the years have been bank political action committees and bank officials and employees.
The adage that all politics is local plays out in his case, and he gets huge backing from an assortment of people from his community. There were some interesting reactions to his nomination to head FHFA:
Erskine Bowles, a fellow North Carolinian and former White House chief of staff under President Bill Clinton, praised Watt as a first-rate selection. The two men were classmates at UNC.
Bowles, a Democrat who joined with former Republican Sen. Alan Simpson of Wyoming to propose means to reduce the national deficit and debt, told The Associated Press that Watt brings “a bright mind, great work habits and an understanding of how Washington works to the job.”
Watt was one of just 22 Democrats in March 2012 to vote for a budget modeled after the Simpson-Bowles commission’s deficit-reduction recommendations. “It’s the only thing out there that talked about shared sacrifice,” Watt later told the Greensboro News & Record.
Hugh McColl, former Bank of America chairman and CEO, also welcomed Watt’s nomination: “What he brings to everything – doesn’t matter the subject – is an open mind. He has clarity of thought.”
The National Association of Home Builders posted a statement from its chairman, Rick Judson, a home builder and developer from Charlotte, N.C.: "We applaud the nomination of Representative Watt to this important position. After four years in conservatorship, the future of Fannie Mae and Freddie Mac stands at a crossroad. Rep. Watt brings years of experience to this position at a pivotal moment as our nation's housing market recovers. NAHB looks forward to working closely with Rep. Watt to help address the many complex challenges facing the U.S. housing finance system upon his confirmation by the U.S. Senate."