Foreclosure Paperwork Mess Poses Housing Threat

Washington, DC, Nov. 16, 2010 -- The confusion stemming from flawed foreclosure documents could deepen the disruption in the housing market and hurt the government's effort to keep people in their homes, according to a new federal report.

If the irregularities are widespread, the consequences could be severe, and could pose a major threat to banks, the Congressional Oversight Panel said in a report issued Tuesday. The full impact is still is unclear, the report cautions.

Financial firms that service a total $6.4 trillion in mortgages are involved, according to the new report. Big banks including Bank of America Corp., JPMorgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage have suspended foreclosures at some point because of flawed documents.

The report says that orrowers may not be able to ascertain if they're sending their mortgage payments to the right party. Judges may block all foreclosures. Prospective buyers and sellers could be in left in limbo.

For major banks, the losses could reach billions, the report said.

The oversight panel was created by Congress to oversee the Treasury's $700 billion rescue program that came in at the peak of the financial crisis in the fall of 2008. Of the total, $75 billion was earmarked for mortgage assistance programs.