Following up on this earlier item about the Justice Department’s impotence in prosecuting financial fraud, take a look at what they’ve been reduced to promoting (h/t Marcy):

Attorney General Eric Holder, Housing and Urban Development (HUD) Secretary Shaun Donovan, FBI Associate Deputy Director Kevin L. Perkins and Federal Trade Commission (FTC) Chairman Jon Leibowitz today announced the results of the Distressed Homeowner Initiative, the first-ever nationwide effort to target fraud schemes that prey upon suffering homeowners. The yearlong initiative, launched by the FBI, a co-chair of the Financial Fraud Enforcement Task Force’s Mortgage Fraud Working Group, resulted in 530 criminal defendants charged, including 172 executives, in 285 federal criminal indictments or informations filed in U.S. District Courts across the country. These cases involved more than 73,000 homeowner victims and total losses by those victims estimated by law enforcement at more than $1 billion.

“These comprehensive efforts represent an historic, government-wide commitment to eradicating mortgage fraud and related offenses,” said Attorney General Holder. “The success of the Distressed Homeowner Initiative, and the developments we announce today, underscore our determination to pursue these and other financial fraud criminals around the country.”

It’s instructive to see the timeline of this initiative. It started at the beginning of fiscal year 2012, in October of 2011. The FBI first highlighted the high incidence of mortgage fraud, largely from crimes in the origination process, in 2006. So making this a point of emphasis is five years late to the party.

Now, of course you’ll object, this Administration only came to power in January 2009. I’m fine with holding to that standard. It turns out that officials inside the government were warning about mortgage fraud scams, in particular foreclosure rescue scams, even before the launch of HAMP, the main foreclosure mitigation program. These scams took advantage of homeowners facing foreclosure, with individuals claiming to be agents to help secure loan modifications taking thousands of dollars in up-front money from borrowers – or worse, taking title of the home – and then doing nothing to help them. It was beyond obvious that, once the government put HAMP out there, that penny-ante grifters would create these kinds of scams. But the main task force devoted to prosecuting these crimes at DoJ doesn’t start until over two years later.

I want to be clear. These foreclosure rescue scams infuriate me. I know people who have been particularly victimized by them. If DoJ or HUD or the FBI or anyone wants to drive these scams out of business and put the people responsible for them behind bars, I will applaud their efforts. But the thing to do was to work to prevent such scams in the first place. Stronger citizen education efforts would have done the trick. Instead, there was almost no public relations muscle put behind HAMP, certainly not to tell people to avoid agents saying they could help them obtain a modification.

More important, foreclosure rescue scams are the small fry of the foreclosure fraud industry. The real perpetrators of widespread fraud work at the banks. And they have not been touched by DoJ, not even in the initial Eric Schneiderman lawsuit against JPMorgan Chase over securities fraud. DoJ didn’t participate in that with a parallel proceeding, nor did any other federal agency. Perhaps most insidious, the Justice Department also announced that its US bankruptcy trustee has filed 110 cases against defendants who engaged in “False or abusive filings in U.S. Bankruptcy Court … commonly used to execute foreclosure rescue scams.” You know who else files false or abusive filings? The banks!

It’s good that DoJ is cracking down on foreclosure rescue schemes. They are also offering pro bono financial planning assistance to victims of one scheme in California. But none of this is a substitute for going after systematic fraud in the residential housing market. It’s just not.

UPDATE: As if on cue, the Justice Department announces a mortgage fraud lawsuit against Wells Fargo. Great! Except it’s about civil violations associated with false certifications on FHA loans, where “FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.” That’s millions with an “M.” The complaint seeks treble damages, but similar cases with other big banks have settled for between $130 million and $200 million. Pocket change.