The decision by Senate Democrats to push the button on the "nuclear option" will likely have a significant impact on home loans by clearing the way for two Obama nominees to key posts with major influence over the mortgage markets.

Thursday's vote to eliminate the filibuster on nearly all presidential nominees clears the way for the confirmation of Rep. Mel Watt (D-N.C) to become director of the Federal Housing Finance Agency (FHFA) and for Janet Yellen, currently vice chair of the Federal Reserve, to become the new Fed chair in January.

Watt's confirmation appeared in doubt after a cloture vote to end a GOP filibuster blocking it failed on Halloween. Yellen's confirmation has been regarded as likely, although Sen. Rand Paul (R-Ky.) has been holding it up as leverage in his efforts to demand an audit of the Fed. Now, it appears both nominees will be easily confirmed.

Watt may act to make mortgages easier to get

The nomination of Watt has perhaps the greatest potential to impact homeowners and mortgage borrowers, as the FHFA has authority over Fannie Mae and Freddie Mac, the entities that guarantee the majority of residential mortgages in the United States, and therefore play a huge role in determining mortgage guidelines and rates in this country.

It's believed that Watt will be inclined to use his position to free up mortgage lending, perhaps by allowing Fannie Mae and Freddie Mac to loosen restrictions on credit, in an effort to boost the housing market and overall economy. The current acting director, Edward DeMarco, is a Bush administration holdover who has been more focused on winding down the two mortgage guarantors and reducing the role of the federal government in mortgages.

Principle reductions on the way?

Watt is also regarded as sympathetic to the administration's desire to provide relief to underwater homeowners in financial distress by allowing Fannie Mae and Freddie Mac to forgive a portion of that debt as part of loan modifications that would reduce their monthly mortgage payments. DeMarco has firmly resisted White House pressure to allow such reductions.

Watt's nomination has the support of the Mortgage Bankers Association and civil rights and consumer advocacy groups, such as the Urban League. Conservative groups, such as the Club for Growth, have favored retaining DeMarco in the post.

Yellen seen to support low rates

Yellen's confirmation as chair of the Federal Reserve would mean that the Fed will likely continue to pursue a policy of supporting low interest rates as an economic stimulus, at least until the employment picture significantly improves. The Fed's economic stimulus efforts are a primary reason that mortgage rates have been at historic lows in recent years.

Yellen is on the record as saying she believes boosting the economy at this point is more important than limiting inflation, which is a possible side-effect of the Fed's economic stimulus efforts. She has also said she does not believe inflation is a threat in the near future; if inflation were to become a problem, raising interest rates would be a likely Fed response.

Published on November 22, 2013