Changes at the top of federal bureaucracies often seem to have little effect on the average person. But this week's confirmation of former U.S. Rep. Mel Watt as director of the Federal Housing Finance Agency (FHFA) could have a direct impact on many mortgage consumers and on the housing market in general.

Watt, confirmed by the Senate this week to replace former Acting Director Ed DeMarco, is regarded as a figure who'll strive to make the mortgage and housing markets more consumer-friendly. DeMarco, on the other hand, was widely seen as focused on reducing the government's role in mortgages and housing.

Watt's confirmation has been largely cheered by the mortgage and housing industry, including the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders, who expect he'll help give their business a boost. DeMarco had been strongly supported by fiscal conservatives and congressional Republicans, who saw him as pursuing policies they regarded as fiscally responsible and reducing the likelihood of a new housing bubble.

Here are four policy changes with direct effects on consumers that we may see as a result of Watt's appointment.

1 - Mortgages will likely become easier to obtain

The FHFA serves as the conservator for Fannie Mae and Freddie Mac, the government-formed companies that back the vast majority of U.S home loans. As a result, the agency and its director have a major influence on setting mortgage guidelines.

President Obama, who appointed Watt, has expressed frustration over the high barriers that remain to mortgage lending for many Americans. Watt himself has echoed that concern. The FHFA has reported that the average credit score for borrowers approved for a Fannie Mae or Freddie Mac mortgage is above 750 - higher than the scores of two-thirds of U.S. consumers. The average down payment or equity on those same loans was is reportedly 20 percent. It seems a good bet that Watt will take steps to relax those stringent standards to some extent, though no one expects a return to the easy credit days of the housing bubble.

2 - Fannie Mae and Freddie Mac may stick around

Fannie Mae and Freddie Mac suffered huge losses when the housing market collapsed, which led to them being placed in government conservatorship, with the losses covered by taxpayers. Many critics also blamed them for creating the conditions that led to the housing bubble in the first place, though others say they were simply made scapegoats for problems created on Wall Street.

What is clear is that Fannie Mae and Freddie Mac have played a central role in the U.S. mortgage market for a very long time, all the way back to the Great Depression in the case of Fannie Mae. By guaranteeing home loans, they helped make mortgages more affordable for homebuyers and made it feasible for lenders to offer 30-year fixed-rate loans, the backbone of the U.S. residential mortgage market.

Following the crash, there was strong support in Congress to wind down Fannie Mae and Freddie Mac, but those calls have faded over time. Under DeMarco, the FHFA was making plans to replace Fannie and Freddie with a new entity that would provide less government support for the mortgage market, but under Watt it appears the focus may shift to simply reforming the two agencies instead.

3 - Principle reductions for at-risk borrowers

One of President Obama's main frustrations with DeMarco - a Bush administration holdover - was that the latter refused to embrace his plan to provide mortgage relief to targeted homeowners by reducing the principle owed on their mortgages. The threat of a GOP filibuster prevented Obama from replacing DeMarco until now.

The administration argued that such reductions, as part of loan modifications for underwater homeowners, would keep more people in their homes and actually save money for Fannie and Freddie by reducing foreclosures. But DeMarco thought such a policy would simply create more losses by reducing principle in cases where it wasn't actually needed.

With Watt at the helm, it seems likely we'll see some sort of targeted principle reduction program for underwater homeowners. However, with home values rebounding across much of the country and new foreclosures back to precrash levels, it's not clear how much of an impact the policy would have at this point.

4- HARP 3.0 could become a reality

Ever since HARP 2.0 came out in October 2011 - the last change to the government's Home Affordable Refinance Program - there's been talk of a possible HARP 3.0. HARP 2.0 cleared away many of the barriers that had made lenders reluctant to refinance mortgages for low-equity and underwater homeowners, and resulted in a big increase in mortgages refinanced through the program. However, the program remains limited to Fannie Mae and Freddie Mac loans.

Under HARP 3.0, the program may become available to mortgages not backed by Fannie Mae or Freddie Mac - as are many of the home loans made during the years of the housing bubble, including Alt A and subprime mortgages. It may also allow borrowers who have already refinanced through HARP to refinance a second time, as well as extend the program beyond its currently scheduled expiration at the end of 2015.

It' never clear exactly what policies an agency will pursue under a new director - changing circumstances or political realties can mean that even top priorities can fall by the wayside. But this is a general outline of what it's thought the Obama administration seeks to accomplish by pushing through the change at the top of the FHFA.

Published on December 14, 2013