The Wall Street Journal, pretending that federal regulators imposed actual penalties on the mortgage servicers in their foreclosure fraud consent decree, has a breathless story up today about the rush to fix foreclosure practices and all the money it will cost these companies.

Under orders from U.S. regulators, 14 financial institutions have until mid-June to lay out plans to clean up their mortgage-servicing operations—and another 60 days to make the changes.

It will be a daunting, expensive chore despite the work done since the foreclosure mess erupted last fall. J.P. Morgan Chase & Co. said it would take a $1.1 billion charge related to the consent order and other servicing-cost increases. Citigroup Inc., which services $602 billion of mortgage loans, predicted the changes will boost expenses by as much as $35 million a year.

“It does raise the bar,” said Frederick Cannon, director of research at Keefe, Bruyette & Woods Inc. The overhaul either goes “beyond what was considered best practices for the industry, or [banks] weren’t really complying with best practices.”

Yeah, it’s one or the other. It’s just unfathomable that banks weren’t complying with best practices when they had former 7-11 Slurpee jockeys signing tens of thousands of affidavits a day without any knowledge of the underlying documents.

Somehow I’m not shedding a tear for Citigroup and the $35 million a year it will take for them to staff their servicing unit adequately and pretend not to defraud customers. I think given the 10 years or more of avoiding county recording fees and the hundreds of billions they ought to be on the hook for given the scope of the fraud, $35 million is a fairly light touch.

The proof here that the regulatory order will not change much in the mortgage industry can be seen from a different article by the same author, where state judges state flatly that, even after robo-signing and all the evidence of fraud upon state courts, not a whole lot has changed:

Some judges are skeptical of claims by lenders that they have substantially improved their foreclosure procedures since controversy over the practices exploded last fall.

F. Dana Winslow, a N.Y. State Supreme Court Justice in Long Island’s Nassau County, said there has been only “a marginal improvement in what is being submitted to the court.”

For example, financial institutions are “showing a better chain of title” about who owns the debt, he said. “But I’m not seeing any additional clarity on who has control over the actual mortgage note signed by the borrower and lender and where the note is.”

There’s no clarity in court because there’s no clarity among the actual companies involved. The solution to untangling this mess has been to bury it. But an increasing number of judges aren’t buying it. Federal regulators can try to whitewash this all they want, but in jurisdictions where the law still means something, banks might actually have to comply with it.

Other nuggets from this article: Single point of contact isn’t working (says one Wells Fargo customer, “They kept assigning me a person, but I never got to speak to that person”), Fannie and Freddie just rolled out some new guidelines that will credit servicers which reach modification benchmarks, customers are still waiting a while while their documents process (141 days for an answer after an initial modification request, according to LA Neighborhood Housing Services) and every servicer is staffing up.

That all of this is happening FOUR YEARS after the housing crash began is almost unthinkable.

David Dayen

David Dayen