NEW YORK (TheStreet) -- The Senate on Tuesday evening approved the nomination of Mel Watt (D., NC) as the head of the Federal Housing Finance Agency, the regulator of bailed-out mortgage finance companies Fannie Mae and Freddie Mac.
Watt was confirmed with a 57-41 vote. He would replace Acting Director Edward DeMarco as the overseer of the government-sponsored companies that are now in conservatorship.
Watt will be the first permanent director to head the agency in more than four years.
As head of the FHFA, Watt would have a key voice in the debate over U.S. housing policy. Fannie and Freddie own or back more than 80% of newly originated mortgages and, therefore, dictate everything from mortgage underwriting standards to terms of mortgage relief for borrowers with government-backed loans.
Watt's confirmation comes after a prolonged fight over who should run the agency. Democrats have been eager to replace DeMarco, who has clashed several times with the Obama administration on a range of issues, notably over reducing principal on mortgages to provide relief to borrowers.
DeMarco has refused to allow the agencies to modify principal, despite the fact that the Treasury offered them incentives to do so, arguing that the costs to administer the program outweigh the benefits. Proponents of principal reduction believe it is the only effective way to prevent future defaults.
Republicans, meanwhile, have been opposed to having a Democrat run the FHFA and have supported DeMarco, who is seen as politically neutral. Obama's first nominee to the post, then North Carolina Banking Commissioner Joseph Smith Jr withdrew himself from consideration amid stiff opposition from Republicans.
Obama nominated Watt to the FHFA as early as May this year. In October, Republicans blocked a vote on his nomination to the post, with the Senate votes falling just short of the minimum 60 required to break a filibuster.
Then Democrats last month adopted a "nuclear option" to ease the confirmation process for presidential executive and judicial nominees.
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. That paved the way for a swift confirmation of Watt on Tuesday.
Consumer activists cheered the nomination of Watt to the post, with many expecting the new director to offer more relief for troubled borrowers and expand access to mortgage credit.
"The FHFA Director has the power to help rebuild local economies and communities through direct action and administrative reforms -- and we're confident Mel Watt will do just that. With Congress potentially years away from significant housing finance reform, the FHFA should take an active approach to restoring the dream of affordable home ownership, " said Alan Jenkins, director of The Opportunity Agenda, in a statement.
"Our nation's economy depends on a robust housing recovery and that recovery needs to include everyone," Elyse Cherry, CEO of Boston Community Capital, a non-profit community development financial institution said. "Mr. Watt's confirmation gives us an opportunity to refocus our policy to help the lower income, urban areas that are still struggling with housing prices that have not rebounded."
Policy at the GSEs might undergo some changes under Watt. DeMarco has been trying to actively reduce the dominance of the agencies. Even as late as Monday, he pushed for an increase in fees the agencies charge to guarantee mortgages in order to attract private capital.
DeMarco has also been considering the idea of lowering the limit on loans that the agencies would buy and securitize.
Housing policy analysts believe Watt might be more slow in implementing these changes in order to avoid disrupting the fragile mortgage market.
Principal reduction might also be on the cards, though with the housing market recovering and negative equity falling, the urgency to do so has somewhat diminished.
Still, the confirmation of Watt to the position should allow for greater clarity going forward in the mortgage and housing industry.
-- Written by Shanthi Bharatwaj in New York