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Campaign to Replace Fannie, Freddie Regulator May Fail

Stocks in this article: FNMAFMCC

There has been chatter that the Administration is seriously looking for someone who will support principal reductions to replace DeMarco. The Wall Street Journal recently reported that longtime House Financial Services Committee member Committee Mel Watt (D., NC) is under consideration.

However, analyst Ed Mills at FBR Capital Markets believes it is unlikely that the candidate will be confirmed. "Senate Republicans (who have the votes to block a nomination) will be extremely reluctant to support a candidate who has publicly backed principal reductions, has supported bankruptcy changes allowing for "cram-down" on residential mortgages, and served on the House Financial Services Committee during the height of power of Fannie and Freddie (having accepted campaign contributions from both)," he wrote in a recent report. "We also anticipate concern that Congressman Watt may not meet statutory requirements for the director's position. Should other candidates emerge, we anticipate they would face similarly long odds in the Senate."

Besides, Republicans like DeMarco, who has shown a commitment to bringing back private capital into the housing market and shrinking the government's role.

"While FHFA is doing what it can to encourage private capital back into the marketplace, so long as there are two government-supported firms occupying this space, full private sector competition will be difficult, if not impossible, to achieve," DeMarco said in testimony before the House Financial Services Committee earlier this week.

"I have been observing a developing 'consensus' among private market participants that the conforming conventional mortgage market cannot operate without the American taxpayer providing the ultimate credit guarantee for most of the market. As I have noted, that clearly is one policy outcome, but I do not believe it is the only outcome that can give our country a strong housing finance system. I believe it is possible to rebuild a secondary mortgage market that is deep, liquid, competitive, and operates without an ongoing reliance on taxpayers or, at least, a greatly reduced reliance on taxpayers, if that is what we set our minds to accomplishing," he said.

So while the Dump DeMarco campaign may be gaining momentum, it is unlikely to lead anywhere for now.

-- Written by Shanthi Bharatwaj in New York.



>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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