FHFA Nominee Watt May Be Down, But He's Not Out

WASHINGTON — Rep. Mel Watt, D-N.C., faces an uphill confirmation battle this week to head the Federal Housing Finance Agency, but it's unlikely to be the end of the war.

Although Watt is not expected to secure the necessary 60 votes in the Senate to end debate on his nomination, the White House is unlikely to abandon its fight to replace Edward DeMarco, FHFA's acting director since 2009.

"If the vote is unsuccessful, I think many Democrats in the Senate expect Rep. Watt will have another chance," said Dwight Fettig, a partner at Porterfield, Lowenthal & Fettig and the former staff director of the Senate Banking Committee.

In the meantime, both sides are likely to continue their full court press until the vote to end cloture takes place, which could come as early as Thursday.

Housing industry groups, civil rights advocacy organizations and the Obama administration officials have made a strong push for Watt in recent days as some conservative organizations, including the Club for Growth, urged senators to vote against the nominee.

"We are here to make clear that this is important to the president and he's going to stay on it," said Gene Sperling, director of the National Economic Council, on a conference call with reporters on Wednesday. "There is simply no reason for anyone to be opposing Mel Watt. No one has given a credible reason for opposing or for filibustering Mel Watt. It's almost unprecedented for a sitting member of Congress to be filibustered."

Shaun Donovan, head of the Department of Housing and Urban Development, echoed that sentiment, arguing that Watt's confirmation would bring certainty to the housing market and help the housing finance reform effort.

Republican opposition has largely centered on concerns that Watt does not have the technical expertise or experience to head the agency.

So far, however, only one Republican, Sen. Richard Burr of North Carolina, has pledged to support the congressman from his home state. Yet rumors persist that other GOP lawmakers might do so. With Burr's backing, Watt would have 56 votes, still four shy of the necessary threshold.

"Any Republican Senator besides Burr who votes for Watt would want to trumpet his or her bipartisanship and get maximum political advantage for breaking with the majority of the party," said Brandon Barford, a vice president at ACG Analytics. "The time for that has already passed — a promise of a yes vote would have resulted in days of headlines. There are rumors, but no Republicans are stepping up — nobody's taking political advantage of the fact that they're potentially going to vote for him."

Even if Watt fails to win confirmation, several observers suggested that the White House has little to lose by sticking with the nominee, either positioning him for a vote at another time or bringing him into a broader deal with Republicans.

At the very least, it provides more fodder for the argument that the GOP is obstructionist if Watt refuses to withdraw and remains in limbo. The lawmaker faces a filing deadline in North Carolina at the end of February if he decides to run again for the House.

"It just strikes me as [Consumer Financial Protection Bureau Director Richard] Cordray part two — they're just being obstructionist. They just want to block any nominee to this post," said one Senate aide. "Republicans blocked the previous nominee Joe Smith, who was a technocrat. Now they are saying that Watt should be blocked because he's a politician and not a technocrat."

In a move that would undoubtedly draw the ire of Watt's opponents, the White House could also potentially name the lawmaker to the position with a recess appointment in January.

Obama, of course, has faced strong pushback from Congress and the courts for his decision to recess appoint Cordray and several members of the National Labor Relations Board last year. But importantly, a recess appointment this time around would take place during an intersession recess, a different type of recess than the one that sparked the earlier challenges. The moment of opportunity would come between the two sessions of the 113th Congress — the time between the gavel strike to conclude the first and one to begin the second.

"This type of recess appointment is on firmer, or at least less unstable, constitutional ground," said Barford. "If the White House chooses to go down that road, it is open to them."

That could also help play into the narrative that Republicans won't work with the other party and galvanize Obama supporters, Barford added.

"With such an appointment, the President could highlight continued Republican obstructionism and start the new year by rallying important segments of the Democratic base," he said.

Still, it remains an open question how committed the White House remains to its nominee and the need to install a new leader at the FHFA. Some argued that if Watt were truly a key player, he could have been part of the earlier deal this summer to confirm Cordray and others.

"The current push to confirm Watt is not the White House saying that he is really important," said Barford. "In reality, they have received incredible pressure from housing advocacy groups, and they see this potential fight as a way to pivot from health care and other issues. If confirmation of Watt were a top priority, he would have been part of the prior 'nuclear option' negotiations."

Isaac Boltansky, a policy analyst with Compass Point Research & Trading, added that the effort pales in comparison to that made for the head of the CFPB.

"The White House, even with the most recent push, has yet to pound the table for Watt, compared to how adamantly they pushed to have Cordray be director of the CFPB — I think that's the clearest comparable" he said.

Others argued that the appointment remains a critical one and predicted that the president will keep pushing.

"This is a serious effort, and this appears to be a very high priority. Even if it doesn't go through this time, I don't think we'll see the White House give up on Watt," said the Senate aide.

Robert Bostrom, co-chair of the financial regulatory and compliance practice at Greenberg Taurig, added that the position to head the FHFA remains critical as the housing finance reform debate bleeds into next year and beyond. The regulator for Fannie Mae and Freddie Mac will continue to implement the agency's strategic goals in the meantime, giving the FHFA a lot of power to shape the direction of the future housing market.

"If Watt is confirmed, I think he will develop his own plan," he said. "My sense is that Watt would disengage the government from the housing market at a slower pace, and I think there'd be a renewed energy around affordable housing."