The Federal Housing Finance Agency [FHFA] statement on the foreclosure fraud crisis is a whitewash. Basically, Acting Director Ed DeMarco wants the banks to solve this problem on their own, and quickly. Let me boil down the four-point policy “framework” they released:

1) “Verify Process” – Hey servicers, look at what you’re doing! If you want a shorter version than that, how about “follow the law.”

2) “Remediate Actual Problems” – if you find something wrong, um, do something about it.
a) Pre-judgment foreclosure actions – um, file another affidavit, and mean it this time.
b) Post-judgment foreclosure actions – Wow, you’re kind of screwed, but see if you can get the judge to forget the fraud and file a replacement affidavit.
c) Post-foreclosure sale – Now you’re REALLY screwed. You sold a house based on false documents! See what you can do.
(For Real Estate Owned, or REO properties: make sure you get some title insurance! You’re going to need it!)
d) Bankruptcy Cases: Good luck.

3) Refer Suspicion of Fraudulent Activity – Probably would be a good idea to follow the law. If you didn’t, be a good servicer and turn yourself in.

4) Avoid Delay – Now get those foreclosures done! We have records to break, people!

That’s really it. My favorite two lines: “In developing this framework, FHFA has benefited from close consultation with the Administration and other federal financial regulators,” (it took more than one regulator to come up with this?) and “FHFA will provide additional guidance should it become necessary.” (They didn’t provide any guidance here!)

Now, Fannie and Freddie, who FHFA oversees, have taken some legitimate action. They fired the foreclosure mill law firm they were using to handle foreclosures in judicial states.

Stern’s company is one of dozens of mills that now churn through more than a million cases a year for Fannie and Freddie, big banks, and private lenders. Built like industrial assembly lines, the mills employ small armies of paralegals and other low-level employees who mass-produce court filings, run title searches, and schedule scores of hearings and property auctions daily. Meanwhile, staff attorneys appear for dozens of court hearings in rapid succession, pulling plastic filing cabinets on wheels behind them as they dash from one courtroom to the next. Stern and his ilk typically create in-house subsidiaries, which then bill the parent law firm for the various services. “All sorts of crap is loaded on,” notes Irv Ackelsberg, a Philadelphia consumer-law attorney.

That model, legal experts and defense attorneys told me, led to plenty of corner-cutting and even allegations of fraud and deception in the foreclosure legal process, including using backdated documents in court. As Ira Rheingold, executive director of the National Association of Consumer Advocates, told me then, the credo of these outfits seemed to be, “How fast can I turn this file?” Rheingold added, “For these guys, the law is irrelevant, the process is irrelevant, the substance is irrelevant.”

Citigroup and GMAC have stopped working with David J. Stern as well. They were the firm whose paralegal, Tammie Lou Kapusta, said in a deposition released recently that the company routinely forged and backdated documents.

This is kind of an admission on Fannie and Freddie’s part that they, too, are caught up in this crisis. Does that mean that Ed DeMarco will be undergoing the rigorous four-point “framework” for them as well?

The real tragedy here is that FHFA focuses on a document problem, and not a systemic problem throughout the lending industry. They’re still keeping their heads in the sand.