N.C. regulator may guide mortgage giants
Obama chooses Joseph Smith for troubled Fannie Mae and Freddie Mac as a debate looms in Congress.
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WASHINGTON President Barack Obama tapped N.C. Banking Commissioner Joseph A. Smith Jr. on Friday to take over the troubled mortgage-lending giants of Fannie Mae and Freddie Mac - potentially putting North Carolina's top bank regulator at the center of one of the major economic debates facing Congress next year.
Smith, 61, would become director of the Federal Housing Finance Agency if confirmed by the full Senate. There, he would also oversee the 12 Federal Home Loan Banks.
"Mr. Smith brings to this position both tremendous expertise and a deep commitment to strengthening our housing finance system for the American people," Obama said in his nomination. "I'm grateful that he has accepted this nomination, and I look forward to working with him in the months and years to come."
Lawmakers will tackle housing market regulation next year as they restructure the two mortgage-purchasing agencies. Both are being backed with $135 billion from the Treasury Department and continue to lose money. Obama must decide by January how he wants to bring Fannie and Freddie out from government receivership.
The two government-sponsored agencies have played a crucial role in the housing market. They traditionally buy mortgages from lenders, then hold or bundle them into mortgage-backed securities for investors worldwide - a process that keeps money flowing in the housing market.
In Smith, Obama has chosen someone experienced in regulating the types of housing deals that helped plunge the country into its financial crisis. North Carolina was the first state in the country with an anti-predatory lending law, and Smith has testified before Congress about increasing consumer representation.
He also argued in Senate testimony in 2007 - before the financial meltdown - that government-sponsored enterprises should help sustain affordable home ownership across the country. And he has backed consumer protection housing legislation promoted by N.C. Democrats in Congress.
Smith would replace acting FHFA director Edward DeMarco.
While both parties want changes to the structure of Fannie and Freddie, lawmakers differ on whether to privatize the two agencies entirely, or whether to retain some governmental backing. If confirmed, Smith would be in charge of carrying out the changes.
Some observers questioned whether the president should appoint someone from the private sector for the job.
But Paul Stock, executive vice president of the N.C. Bankers Association, said Smith has been able to strike a balance between protecting consumers and allowing banks to operate profitably. Smith has also helped elevate the N.C. banking commission into an example for other states to follow, Stock said.
"One of things we see here, and much more so since Joe's been in place, is that people from all over the country show up to see what we're doing," Stock said.
Smith was appointed N.C. Commissioner of Banks by then-Gov. Mike Easley in 2002. Smith's term was set to end in March, though Gov. Bev Perdue could have chosen to reappoint him for another four years.
Smith came to office with the goal of helping the state's "unbanked," the poor and immigrants who don't use financial institutions. As commissioner, he heads an agency charged with the supervision of banks and thrift institutions; the licensing and regulation of firms and individuals engaged in mortgage banking and brokerage; and the regulation of a variety of consumer finance enterprises.
Under Smith's leadership, the state tightened licensing requirements for mortgage brokers and encouraged banks to lend to small businesses. The agency is also in the thick of the foreclosure crisis, and in June implemented a rule that prohibits a mortgage servicer from initiating or proceeding with a foreclosure on borrowers who have asked for a modification.
Smith would leave behind a state where foreclosures keep ticking up and community banks are struggling under the weight of troubled real estate loans. Though only two N.C. banks have failed during the crisis, 13 of the 86 state-chartered banks are on the commission's list of troubled institutions.
"I don't know if I would give this guy any black marks, but I certainly wouldn't give him any credit," said Joe Gordon, managing partner of Gordon Asset Management in the Raleigh area.
If Smith leaves, he won't be the only N.C. banking official moving to D.C.
Mark Pearce, the state's deputy banking commissioner and the person in charge of the commission's response to the foreclosure crisis, left two weeks ago to run a new consumer division at the Federal Deposit Insurance Corp.
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