The Wall Street Journal reports that the White House will finally nominate a successor to Ed DeMarco at the Federal Housing Finance Agency for the first time since January 2011, incredibly enough.

The FHFA’s current director, Edward DeMarco, took the job more than three years ago in an “acting,” or interim, capacity. He has remained in the position after the Obama administration’s first nominee for the job, Joseph Smith Jr., then the North Carolina banking commissioner, withdrew from consideration in January 2011 amid opposition from Senate Republicans. The FHFA, created 4½ years ago, has never had its own director confirmed by the Senate.

Administration officials are still gathering names of potential nominees and haven’t pared down to a shortlist or interviewed candidates, according to people familiar with the matter. White House and FHFA officials declined to comment.

While some liberal political groups have pushed for a quick recess appointment that bypasses the need for Senate confirmation, such a move appears highly unlikely for now. One person familiar with the discussions said officials were likely to seek a nominee who would pose few problems gaining Senate confirmation, a sign that a recess appointment isn’t being considered for now.

Incidentally, this represents a broken promise on FHFA, if you believed what housing advocates said the Administration was telling them before the election. They swore that they were told Ed DeMarco would be fired, “most likely by replacing him via an appointment while Congress is not in session.” In fact the advocates named names – they said Gene Sperling and Jon Carson told them this.

What does it mean that the Administration wants to find a nominee “who would pose few problems gaining Senate confirmation,” as a replacement to DeMarco in a normal process? I doubt it means that the replacement would support participation by Fannie and Freddie in HAMP-related principal reduction programs, the main sticking point for activists. But it probably does mean that a new FHFA Director would not pursue this with such aggressiveness:

The nation’s largest banks are facing a fresh torrent of lawsuits asserting that they sold shoddy mortgage securities that imploded during the financial crisis, potentially adding significantly to the tens of billions of dollars the banks have already paid to settle other cases.

Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and others, related to more than $1 trillion worth of securities backed by residential mortgages [...]

Efforts by the banks to limit their losses could depend on the outcome of one of the highest-stakes lawsuits to date — the $200 billion case that the Federal Housing Finance Agency, which oversees the housing twins Fannie Mae and Freddie Mac, filed against 17 banks last year, claiming that they duped the mortgage finance giants into buying shaky securities.

So banks still have this extraordinary exposure from the housing collapse and their fraudulent sale of mortgage-backed securities. And their biggest hurdle comes from the FHFA lawsuit. If it’s successful, it will inform all these other lawsuits and cost banks up to hundreds of billions of dollars. And people think the Obama Administration wants to replace Ed DeMarco over principal reduction?

Compared to the FHFA lawsuit, all the other lawsuits and enforcement actions by the federal regulatory apparatus are pinpricks. That lawsuit opens up the banks to far more exposure. In addition, banks have complained about lending standards for selling loans to Fannie and Freddie in the secondary market, and the due diligence to which they have submitted new loans. A new FHFA Director would have control over all of this, and if the benchmark is “confirmability from Republicans,” I would hardly expect a more aggressive or interventionist policy profile.

I disagree with DeMarco on principal reduction and think he’s been peculiar about his mandate to conserve funds for taxpayers, particularly in cases where certain policies would represent a long-run benefit. But I really don’t think principal reduction is the issue here. It’s the lawsuits.

…just to note who’s on the agenda for consideration here:

Officials are said to be considering an array of candidates: financial regulators or professionals, academics, and current administration officials. Two names frequently mentioned by housing-policy analysts are Susan Wachter, a professor of real-estate finance at the University of Pennsylvania’s Wharton School who served in the Clinton administration, and Michael Stegman, who currently serves as an adviser to Treasury Secretary Timothy Geithner on housing finance. Both declined to comment.

I don’t have strong opinions about either, though I’ve heard one or two good things about Wachter.