The Senate voted 56 to 42 to proceed to a vote on Watt's nomination -- shy of the 60 votes required to end debate.
Some Senate Democrats have suggested they may change Senate rules to allow for swifter and easier confirmation of nominees. They also reacted with disgust to the GOP's rejection of Watt, noting that sitting members of Congress are very rarely rejected for Cabinet-level posts. (No sitting member of Congress has been denied a Cabinet position since 1843, for example, though FHFA isn't a Cabinet-level position.)
Conservative groups have lined up to oppose Watt's nomination because of his call for more federal involvement in the home mortgage industry.
“He is a good man up for the wrong job,” Sen. Lamar Alexander (R-Tenn.) said.
Said Senate Minority Leader Mitch McConnell (R-Ky.): “America needs someone with technical expertise and experience to run Fannie and Freddie's conservator and ensure that we don’t repeat the same mistakes that led to the last financial crisis. And taxpayers need someone who will protect against future bailouts. This is the second FHFA nominee that President Obama has sent who did not meet those standards."
The previous nominee was former North Carolina banking commissioner Joseph Smith, who withdrew his nomination in 2011.
After the votes Thursday, Senate Majority Leader Harry Reid (D-Nev.) told reporters he felt "sadness" over the Watt vote.
White House press secretary Jay Carney said it is "enormously disappointing that Republicans would filibuster” Watt's nomination.
“We know he’s qualified and we know he would do a good job and there’s a heck of a lot of important work that needs to be done in that agency and Mel Watt needs to be in that job so that this work can move forward," Carney told reporters.
Asked whether Obama would drop Watt's nomination and find a new candidate for the position, Carney said, "Absolutely not.”
When a reporter pressed him on whether the White House sees a racial motive in the vote to block Watt's nomination, Carney said, “I think it is about politics, and I think we’ve seen this kind of obstruction far too often. For individual motivations, you need to ask the individuals."
Senate Republicans later blocked another contentious nomination: Patricia Millett to the United States Appeals Court for the Washington, D.C., Circuit. The court is generally considered the second-most important court in the country, behind the Supreme Court.
Republicans are also threatening to block the nomination of Janet Yellen to become Federal Reserve chairwoman, as well as several other key nominees.
In many of these cases, the GOP's objections have little to do with the actual nominee and more to do with unrelated issues they would like to force the White House and Democrats to address.
Sen. Lindsey Graham (R-S.C.), for instance, has said he will vote to block every nominee until Congress gets more information on the survivors of the attack on the U.S. mission in Benghazi, Libya, last year.
Sen. Rand Paul (R-Ky.) has said he will block Yellen's nomination until his legislation calling for more scrutiny of the Federal Reserve is taken up.
Updated at 1:33 p.m. Ed O'Keefe and Philip Rucker contributed to this post.
Correction: An earlier version of this story misattributed a comment to Reid. The story has been corrected.