As a North Carolina congressman, Mel Watt has tried to arm struggling homeowners with a legal “sledgehammer” against lenders and expand the ranks of people eligible to cut their mortgage principal.

Those positions help explain why President Barack Obama has nominated Watt, a Democrat, to oversee Fannie Mae and Freddie Mac, the mortgage companies seized by the government in 2008. They also underscore Watt’s uphill climb to gain support from the Senate Republicans he’ll need to win confirmation.

Watt’s record hasn’t always put him at odds with big banks, since his district includes the headquarters of Bank of America Corp. as well as thousands of homeowners facing foreclosure. He counts financial firms among his top campaign donors. Still, the nomination is inflaming tensions around housing policy as Republicans and Democrats attempt to jointly redesign the U.S. mortgage system and avoid future taxpayer bailouts.

“The political fight that’s going to be necessary to push this through the committee is going to so sour relationships, that you are just not going to be able to reach across the aisle on a housing finance bill,” said Jaret Seiberg, an analyst at Guggenheim Securities LLC’s Washington Research Group.

Partisan wrangling over Watt could “grind everything to a halt,” Seiberg said.

Republicans aren’t in a hurry to see Watt replace Edward DeMarco, the current head of the Federal Housing Finance Agency, the independent regulator with oversight of Fannie Mae and Freddie Mac. DeMarco has resisted pressure from the Obama administration and consumer advocates to allow the two companies to cut the principal balance on troubled loans, saying that would hurt taxpayers more than it would help homeowners.

Obama’s first choice to replace DeMarco was former North Carolina banking commissioner Joseph Smith. Smith withdrew in 2011 amid strong Republican opposition to his candidacy. Sen. Richard Shelby of Alabama, then the top Republican on the Banking Committee, said Smith would be “a tool” of the White House on mortgage policy.

“It would be a shame if principal reduction turned into a litmus test for FHFA the way Roe v. Wade is for Supreme Court nominees,” said Julia Gordon, director for housing finance and policy at the Center for American Progress, an advocacy group with ties to the Democratic Party.

Republicans who are poring through records of Watt’s history in Congress are questioning his qualifications as well as his politics. “This is a job that requires a very knowledgeable technocrat,” said Sen. Bob Corker of Tennessee, also a Banking Committee member. “This is no job for a politician.”

Watt said in an interview that it would be “putting the cart before the horse” for him to give specifics on what he’d do as FHFA director, adding that his congressional positions wouldn’t necessarily translate into a regulator’s portfolio. He said he’d draw on his background practicing real estate law in Charlotte as well as his legislative work on housing matters.

When the Banking Committee takes up his nomination as early as next month, “All I’d be asking for is a fair shot and consideration of not labels but experiences,” Watt said.

If Watt is able to win confirmation he would assume oversight at a pivotal time for the two government-sponsored enterprises, which provide liquidity to the housing market by packaging loans into securities on which they guarantee payments of principal and interest.

While the FHFA director has the power to set and modify terms for the 50% of existing U.S. mortgages owned or backed by Fannie Mae and Freddie Mac, lawmakers are crafting plans to wind down the companies. At the same time, the rebounding housing market, which has turned around the companies’ financial condition, could sap momentum for change. Both are posting record profits after drawing $187.5 billion in taxpayer aid to stay afloat.

The companies’ future “will be decided not so much by the head of the agency, but by Congress and the administration,” Brian Gardner, senior vice president for Washington research at Keefe, Bruyette & Woods Inc., said in an interview. “Whoever is at FHFA, their views will be that of the administration.”

Watt’s personal history informs his positions on housing, according to his friend Dennis Rash, who retired as a senior vice president at Bank of America.

“I have no doubt that Mel has tended toward the side that would open the credit doors to homeownership and would be proud of that as someone who was reared in modest circumstances,” said Rash, who met Watt while they were working to revitalize a neighborhood in North Carolina.

Watt grew up outside Charlotte in a house without running water or electricity, raised by his mother who worked as a maid. After attending the University of North Carolina at Chapel Hill and Yale Law School he joined Ferguson Chambers & Sumter, a Charlotte-based civil-rights law firm. One of his biggest cases was representing the singer Stevie Wonder in 1973 in a lawsuit over a car crash that left Wonder, a passenger in the car, in a coma for several days. The case was settled, according to Watt.

He began his political career in the 1980s as campaign manager for Harvey Gantt, the first African-American to serve as mayor of Charlotte. Watt’s supporters say that since he was elected to Congress in 1992, he has steered a middle ground between banks and consumers.

His district has pockets of poverty as well as the second- largest concentration of the banking industry next to the New York district that contains Wall Street, according to Watt’s website. From 2011 to 2012, Watt’s four largest campaign contributors were in the financial services industry, including Goldman Sachs Group Inc., New York Life Insurance Co., American Express Co. and Bank of America Corp., records show.

He supported Bank of America in 2011 by declining to join other Democrats who slammed the lender for trying to charge its customers a $5 monthly fee on their debit cards, a plan the bank quickly shelved. In 2009, Watt came under scrutiny by the Office of Congressional Ethics when he withdrew a proposal for more stringent regulations of auto dealers after a series of fundraisers with financial lobbyists. He was cleared.

Watt hasn’t taken the industry’s side on other matters. He co-sponsored the 2009 law that imposed limits on fees and contracts for credit cards, and a bill setting mortgage standards to protect consumers against predatory lending that eventually became part of the 2010 Dodd-Frank Act.

Watt co-sponsored a 2009 bill that would have given judges the power to cut a homeowner’s mortgage principal in bankruptcy proceedings, a proposal dubbed “cram-down” by banks and bond investors who opposed and defeated it. The measure would have given borrowers a “sledgehammer in their back pocket” when negotiating with their lenders, he said at the time.

In December Watt signed a letter to Obama urging him to include in his budget talks with Republicans a provision that would require Fannie Mae and Freddie Mac to reduce principal on some of the loans they guarantee.

“He’s shown an ability to both work with and stand up to the financial institutions,” said Michael Calhoun, president of the Durham, N.C.-based Center for Responsible Lending, a consumer advocacy organization.

In naming Watt, Obama is responding to months of mounting pressure from housing activists and groups including the Congressional Black Caucus, which Watt led from 2005 to 2006. The groups want the president to install someone who will put more emphasis on using Fannie Mae’s and Freddie Mac’s influence in the mortgage market to aid financially struggling borrowers.

Those groups say DeMarco, a career civil servant appointed on an interim basis, has focused too heavily on protecting the companies’ bottom line.

Democrats, including those who serve on the House Financial Services Committee, the panel handling housing issues, said he will advocate a balance between public and private support for homeownership.

Watt “will help everyone to understand why reform is necessary but also we’ve got to balance the government subsidy for some private involvement,” said Rep. Maxine Waters of California, the committee’s senior Democrat.

To win the 60 votes needed for confirmation, Watt must gain support from at least five Republicans if he’s backed by all 55 senators who caucus with the Democrats. So far, Sen. Richard Burr of North Carolina has been the only Republican to back him.

Democrats are reaching out to Republicans from states with high foreclosure rates in the hope that some of them will break ranks. Meanwhile, Republican leaders have been sowing doubts.

Sen. Mike Crapo of Idaho, the ranking Republican on the Banking Committee, said he is “very concerned” about Obama’s choice of Watt.

“That nomination is supposed to be an independent person,” he said in an interview. “We really don’t need a political nominee there right now.”

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