Mel Watt, selected to head the Federal Housing Finance Agency (FHFA), will face an uphill battle at a Senate confirmation hearing.

FHFA

The North Carolina Democrat selected by President Barack Obama to head FHFA will face law makers skeptical of his knowledge of housing-finance issues on Thursday.

A new bill to wind down Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA)  and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and replace them with a new government agency was introduced this week.

The bill would replace the Federal Housing Finance Agency, the current conservator of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA)  and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), with a new government agency, the Federal Mortgage Insurance Corporation (FMIC).

Mel Watt gets a chance to present his case before a senatorial who this week offered the bipartisan plan to replace the mortgage giants with a government reinsurer.

Mel Watt faces a difficult task—to demonstrate in the hearing his level of understanding of housing finance. Many critics feel he doesn’t have the right technical expertise.

FHFA Responsible for U.S. Conservatorship

The FHFA director is responsible for overseeing the U.S. conservatorship of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).

According to FHFA’s 2012 report to the Congress, the conservatorships of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), which began in September 2008, combined with U.S. Treasury financial support and management actions, have stabilized government sponsored enterprises. However they face key challenges such as ongoing stress in the nation’s housing markets, a challenging economic environment, and the need to implement the FHFA Strategic Plan for Enterprise Conservatorships.

Shares of the mortgage giants Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were de-listed from the NYSE in 2010. Until recently, these shares have been traded for pennies. However, they are now up 607 percent and 523 percent in the past six months in over-the-counter transactions.

Large investors like Bruce Berkowitz have been betting that the U.S. government would re-privatize both the mortgage giants.

Mel Watt Needs Republican Support

Democrat Mel Watt would need support from at least five Republicans to gain the 60 votes needed for senate confirmation. So far only Senator Richard Burr of North Carolina endorsed him.

According to Jaret Sieberg, an analyst at Guggenheim Securities LLC’s Washington Research Group, “The odds are against Mel Watt but if he can do a good job convincing Republicans that he’s not going to politicize Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) he has a shot.”