Senate Republicans blocked President Obamas first nominee, a North Carolina banking commissioner, to be director of the Federal Housing Finance Agency back in 2010.
This time around Senate Democrats had to go nuclear and change the Senate filibuster rules so Watt could be confirmed by the simple majority vote.
Watts confirmation is considered a done deal at this point. It appears the Republicans lack any tools to block him from becoming the new FHFA director.
But when the final votes are counted, consumer and affordable housing groups will be winners. They pressed Democratic senators to clear the way for Watts confirmation.
And they are hoping and expecting the new FHFA director will take the two government-sponsored enterprises in a new direction and increase access to credit.
Even mortgage industry officials contend credit standards have become too tight and it is time to safely and responsibly increase the availability of mortgage financing.
Current FHFA acting director Edward DeMarco has been managing Fannie and Freddie as a conservator since August 2009. The GSEs were losing billions of dollars each quarter when he first took the post.
It was appropriate for the FHFA to raise loan guarantee fees, minimize losses and reduce Fannie and Freddies risk exposure, according to Michael Calhoun, president of the Center for Responsible Lending.
But the GSEs are profitable again and Congress is working on housing finance reform legislation.
We are in a different situation now, Calhoun says. And it doesnt make sense to continue winding down the GSEs and further restrict credit.
Industry projections call for a 30% reduction in mortgage originations in 2014. If no one does anything, six months from now you are going to have a significantly reduced mortgage market, Calhoun said in an interview.
The GSEs have been focused on refinancing too much. The new GSE regulator should focus on helping first-time and minority homebuyers, says Center for American Progress fellow Jim Carr.
There is no justification for the extreme tightness of the credit box, says the former Fannie Mae executive. We are well beyond the financial crisis and the struggling housing market is in fact impeding a stronger, more robust economic recovery, Carr says.
Watt has served in Congress for over 20 years and he is a senior member of the House Financial Services and Judiciary committees.
He is well-known as a thoughtful and deliberative legislator who is willing to listen and consider all sides of an issue.
As a regulator he is likely to show more deference to Congress than DeMarco and consult with House and Senate banking committee leaders before taking significant actions.
The Center for Responsible Lending president has known Watt for 30 years. People who are expecting radical change at FHFA are going to be disappointed, Calhoun says.
The new FHFA director is expected to address loan buybacks where the GSEs press lenders to buy back loans with underwriting defects, according to FBR Capital Markets policy analyst Edward Mills. Lenders may be willing to relax their underwriting standards if Fannie and Freddie revise their representation and warranty policies and reduce buybacks.
We believe Congressman Watt will work to provide more rep and warranty clarity to lenders in an effort to expand credit, Mills said in a recent report.
If Watt turns to principal reduction to help underwater borrowers, it would likely be a pilot program rather than a widespread program, Mills says. One reason Senate Republicans have opposed Obamas FHFA nominees is concern they would implement a major principal reduction program.
Democratic constituencies also are holding out hope that Watt would use his new authority to finally start a national housing trust fund that would increase and preserve the supply of rental housing for extremely low-income families.
Fannie and Freddie were supposed to fund this with their revenue under a 2008 law. But the GSEs entered conservatorship in September 2008 and the FHFA failed to authorize the funding.
Consumer groups will be urging Watt to stop the FHFA from scaling back Fannie and Freddies multifamily financing programs as well as getting the housing trust fund off the ground.