"Mel understands as well as anybody what caused the housing crisis," Obama said. "He knows what it's going to take to help responsible homeowners fully recover."
Watt's selection was praised by housing advocates, liberal groups and lawmakers in both political parties.
Tom Wheeler, former head of the Cellular Telecommunications and Internet Association, and the National Cable Television Association, would become the nation's top telecommunications regulator. He has been a venture capitalist since 2005 and he raised more than a half million dollars for Obama's re-election, according to data provided by the campaign.
Wheeler would replace Julius Genachowski, who announced his resignation in March. Obama spoke effusively on Wednesday about Genachowski, his pal from their days together at Harvard Law School.
Obama also sought to allay any concerns that Wheeler would be unable to effectively regulate an industry he once represented, saying Wheeler has spent more than 30 years at the forefront of dramatic change in a "communications universe that is growing and changing faster than you can tweet."
"He's like the Jim Brown of telecom, or the Bo Jackson of telecom," Obama joked, comparing the slender, bespectacled 67-year-old to the two former professional athletes. "So Tom knows this stuff inside and out."
Senate confirmation is required for both posts.
Obama said he would nominate FCC Commissioner Mignon Clyburn, a daughter of Assistant House Democratic Leader Jim Clyburn of South Carolina to lead the agency until Wheeler is confirmed.
Watt's nomination comes at a crucial time for Fannie Mae and Freddie Mac, which were rescued by the government at the height of the financial crisis in September 2008 as they neared collapse from losses on bad mortgage loans. Taxpayers spent about $170 billion on the rescue but so far have received about $55.2 billion in repayment.
Fannie and Freddie together own or guarantee about half of all U.S. mortgages, nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages.
Recent economic data shows the housing industry beginning a comeback since plunging into a depression during the financial crisis. Home prices are up, foreclosures are down and housing construction is rising. Moreover, Fannie Mae had its biggest yearly profit last year, earning $17.2 billion.
Meanwhile, a Congressional Budget Office report released Wednesday found that principal reduction for struggling borrowers by Fannie and Freddie would result in savings to taxpayers of up to $2.8 billion. It also would reduce mortgage defaults by between 18,000 and 95,000 and give a slight boost to economic growth, the report said.
Watt, a senior member of the House Financial Services Committee and former Congressional Black Caucus chairman, played an influential role in the passage of a financial regulatory overhaul in 2010. That legislation, however, did not address the fate of the major mortgage lenders, an issue likely to be revisited during Obama's second term.
In fact, two Republicans Sen. Bob Corker of Tennessee and Rep. Jeb Hensarling of Texas called on the administration to present a plan to overhaul the country's housing finance system.
"This gives new meaning to the adage that the fox is guarding the henhouse," said Corker, who sits on the Senate Banking, Housing and Urban Affairs Committee, in a written statement. "The debate around his nomination will illuminate for all Americans why Fannie and Freddie failed so miserably."
Corker said the administration should "explicitly lay out" its plans for dissolving Fannie and Freddie before the committee considers anyone for the FHFA's top job.
The administration presented such a plan in 2011, with the goal of shrinking the government's role in the mortgage finance system, but Congress has yet to decide on how to limit federal involvement.
Republican Sen. Richard Burr of North Carolina endorsed Watt, saying he looks forward to working with his former House colleague to encourage more involvement by the private sector in the housing and mortgage markets.
"Having served with Mel, I know of his commitment to sustainable federal housing programs and am confident he will work hard to protect taxpayers from future exposure to Fannie Mae and Freddie Mac," Burr said in a statement.
Treasury Secretary Jacob Lew said the administration still wants to work with Congress on overhauling the mortgage finance system.
Watt is the latest African-American and the second North Carolinian nominated to top government jobs this week. On Monday, Obama tapped Charlotte Mayor Anthony Foxx to become transportation secretary.