Senate 'Nuclear Option' Could Lead to Mel Watt Confirmation to FHFA

NEW YORK (TheStreet) -- The Senate's vote on Thursday to ease the confirmation process for executive and judicial presidential nominees might clear the way for the confirmation of Rep. Mel Watt (D., N.C.) as director of the Federal Housing Finance Agency.

Democrats voted to overturn an existing rule that required a minimum of 60 votes to break a filibuster blocking a floor vote for a presidential nomination. Under the new rules, a simple majority of 51 is sufficient.

Senate Majority Leader Harry Reid (D., Nev.) said that he decided to invoke the "nuclear option" to change the rules after Republicans blocked several Presidential nominees.

In October, Republicans blocked the nomination of Watt to head the FHFA, marking the first time the nomination of a sitting member of Congress was blocked in 150 years.

But with an easier confirmation process, Watt will likely be confirmed to head the FHFA, which regulates bailed-out mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC), according to a note from KBW.

If confirmed, there could be some changes in policy at the FHFA.

Acting FHFA director Edward DeMarco has clashed with the Obama Administration on a number of issues, most notably on his reluctance to allow the agencies to forgive principal. DeMarco has argued that other relief measures such as forbearance are equally effective, less costly to administer and do not encourage moral hazard.

Watt is seen as being more sympathetic to the Administration's views and may be more open to principal reductions.

However, it might already be too late for that. "The impact of principal forgiveness would depend on the fate of the mortgage forgiveness tax credit, which is due to expire at year end," notes KBW analyst Brian Gardner.

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