The nomination of Rep. Mel Watt (N.C.) to head the Federal Housing Finance Agency suggests that the administration would like to speed up the slow-going effort to determine the future of the taxpayer-backed mortgage giants. (Andrew Harrer/BLOOMBERG)

President Obama nominated a long-term Democratic lawmaker on Wednesday to run the obscure but powerful agency that oversees Fannie Mae and Freddie Mac, signaling the administration’s desire to preserve a substantial role for the government in the future of the housing market, people close to the White House said.

The nomination of Rep. Mel Watt (N.C.), a member of the House Financial Services Committee who is popular with liberal groups, to head the Federal Housing Finance Agency suggests that the administration would like to speed up the slow-going effort to determine the future of the taxpayer-backed mortgage giants.

The fate of Fannie and Freddie will have big implications for everyone who would like to buy a home, as well as for the 10,000 employees who work for the firms, both in the Washington area.

The announcement comes as Wall Street lobbying is intensifying over the future of the firms, which are now generating billions of dollars in profit every quarter.

A decision to maintain a significant role for the government in the housing market would continue to make affordable 30-year mortgages available to most Americans, analysts say, although it would also mean that taxpayers would continue to be exposed to risks. Other proposals, including several to abolish Fannie and Freddie and replace them with nothing, could mean the disappearance of the 30-year loan because there would be no entity to guarantee such long-term debt.

President Obama named Rep. Melvin Watt (D-North Carolina), to head the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. He also nominated ex-telecom lobbyist Tom Wheeler as the head of the FCC. (The Washington Post)

Whoever is in charge of Fannie and Freddie — or a potential successor agency — would have enormous power to decide not only what kinds of loans are available but also what sort of relief to provide struggling borrowers, such as access to refinancing or modification opportunities, as well as the policies that are used in foreclosure.

“This next five-year period will determine the future path of [Fannie and Freddie] and that will determine the availability of 30-year fixed mortgage and government guarantees and availability of credit,” said David Stevens, president of the Mortgage Bankers Association and a former senior housing official in the Obama administration.

Obama has been cautious not to plot a public path to overhaul the taxpayer-backed firms, which essentially control much of the U.S. housing market, because of deep disagreements between Republicans and Democrats over how to replace them. A senior White House official said Watt’s nomination would help pave the way for discussions later on, given his experience as a lawmaker and his familiarity with the financial industry in North Carolina.

But others close to the White House said Watt’s selection reaffirms the administration’s interest in preserving a strong federal presence in housing.

“I think Mr. Watt’s nomination sends a signal that the administration wants to retool the housing finance system with a continued role for government,” said Julia Gordon, a former housing regulator and director of housing finance and policy at the White House-aligned Center for American Progress. “What that means is continued access to fixed 30-year mortgages, which is probably the most important product for most people who want to buy a home.”

Republican lawmakers expressed frustration Wednesday that Watt would continue to promote a big role for government in housing — a policy that they say helped cause the financial crisis.

“I could not be more disappointed in this nomination. This gives new meaning to the adage that the fox is guarding the henhouse,” said Sen. Bob Corker (R-Tenn.), a top member of the Senate Banking Committee. “The debate around his nomination will illuminate for all Americans why Fannie and Freddie failed so miserably.”

For several years, there has been widespread consensus in the administration and Congress that District-based Fannie and McLean-based Freddie should be abolished and that banks and other private firms should hold most of the risk in mortgage lending.

But Obama and other advisers also have come to an informal consensus that there should be a government backstop for such lending, former officials say. Many Republicans oppose that position, and Obama has stayed quiet as there has been little momentum on Capitol Hill or in the private sector to address the situation.

But that is beginning to change. The current regulator overseeing Fannie and Freddie, Edward DeMarco, is beginning to use his administrative powers to transform the firms and consolidate their functions.

Meanwhile, hedge funds have begun a lobbying campaign to privatize the firms, which were effectively nationalized in 2008 during the heat of the financial crisis.

The hedge funds own a class of stock, known as preferred shares, that would be highly lucrative if Fannie and Freddie were privatized.

“To some extent investors are already speculating that the companies will be returned to the market place,” Sen. David Vitter (R-La.) said last month.