Lawmakers and consumer groups are outraged by the new policy statement written by the Federal Housing Finance Agency (FHFA) regarding the recent mess on foreclosure proceedings. If they had this violent reaction, what more the thousands of homeowners who are facing foreclosures?

Perhaps going with the Obama administration’s stand that a foreclosure moratorium in all 50 states is damaging to the economy, the Federal Housing Finance Agency – along with other federal agencies – has decided to urge mortgage lenders to review foreclosure documents and replace them when flawed. This may be welcome news to the homeowners who are in danger of having their homes repossessed but there’s a caveat to the story. FHFA also says foreclosures can continue while review is being done.

Washington insists that freezing foreclosure on a national level will curtail any hopes of improving the economy. Furthermore, such move will overwhelm the courts around the country.

“The country’s housing finance system remains fragile and I intend to maintain our focus on addressing this issue in a manner that is fair to delinquent households, but also fair to servicers, mortgage investors, neighborhoods and most of all, is in the best interest of taxpayers and housing markets,” explains FHFA acting director Edward DeMarco.

Such policy, says lawmakers and consumer advocates alike, will not have too much of an effect in the ongoing foreclosure fraud. For one, it is too soft on the banks and industry insiders who are in the hot seat for the mess. And second, mortgage lenders are already taking such steps – a mandatory procedure is necessary.

FHFA was established to primarily regulate the government sponsored enterprises Fannie Mae and Freddie Mac. It has no direct control over banks but can still influence them as Fannie and Freddie own more than half of the nation’s home loans. If banks and lenders follow the prescriptions of the policies, financial penalties and sanctions can be imposed by FHFA.

The policy statement urges lenders to make sure that foreclosure documents have undergone thorough review and proper signature. If not, the aid of local lawyers must be sought. New paperwork that went through the correct process must then be files.

The policy, says lawmakers and consumer groups, relies on the very same servicers that created this mess. An internal review, according to them, will not suffice in correcting the issue. Something else needs to be done.

National Community Reinvestment Coalition head John Taylor insists, “I think the magnitude of the crisis is such that we want to do something other than rely on a voluntary system of compliance.”