MELISSA BLOCK, host:
Attorneys general from all 50 states are jumping into the mortgage controversy that's put a freeze on foreclosures in much of the country. At issue is whether several major banks submitted faulty legal documents, while foreclosing on tens of thousands of homes.
As NPR's Tamara Keith reports the states are launching a joint investigation.
TAMARA KEITH: No one knows how big this foreclosure problem really is. That's one of the things the state's top law enforcement officials are trying to figure out. What we do know is that in sworn testimony, employees of both JPMorgan Chase and GMAC Mortgage admitted to signing stacks of foreclosure documents without verifying that what they were signing was really true.
And now numerous other firms that handle mortgages are scrambling to vet their own foreclosure files. The financial firms say these are simply technical issues. Ohio Attorney General Richard Cordray says it's much more serious.
Mr. RICHARD CORDRAY (Attorney General, Ohio): This is not just a fourth-grade student not quite filling in the oval on a multiple-choice exam. This is fraud. They have submitted affidavits that apparently - where they have sworn under oath things that are in fact not true, and they have a lot of exposure here.
KEITH: And it seems the attorneys general intend to use that exposure and their combined clout to pressure the firms to do more loan modifications. They'd like to see the lenders taking more dramatic steps to keep borrowers in their homes by reducing the amount they owe on the loan, not just the interest rate.
Mr. CORDRAY: We're going to work with them to clean it up, but they have to understand that they need to reach out to borrowers and make it right in a way that they might not have done had they not created all this exposure for themselves that they now have.
KEITH: But not all the AGs are convinced this investigation is going to be a boon for struggling homeowners.
Mr. GREG ZOELLER (Attorney General, Indiana): Will this help people stay in their homes? I'm not sure that that's what we're going to find.
KEITH: Greg Zoeller is Indiana's attorney general. He says in Indiana, it looks like many of the problematic documents were in foreclosure cases where the homeowners had already given up.
Mr. ZOELLER: A lot of these are default foreclosure judgments, which means the people never showed up. It's not like the homeowner is arguing that they want to keep the mortgage. Some of them have abandoned the properties.
KEITH: JPMorgan Chase says by the time the homes in its portfolio get to the point of a foreclosure sale, the average loan has been delinquent for more than a year. The bank announced today it's now reviewing 115,000 foreclosure files.
And all this uncertainty is rippling into the housing market, where foreclosures now represent about a quarter of home sales. Lucien Salvant is with the National Association of Realtors.
Mr. LUCIEN SALVANT (National Association of Realtors): This is going to stop everything in its tracks until they get this critical problem resolved.
KEITH: Already, he says, realtors are reporting delayed sales of foreclosed properties and even homes being pulled from the market. Most economists say it's going to be difficult for the housing market to recover with all these foreclosures piling up. Paul Miller is a financial analyst at FBR Capital Markets.
Mr. PAUL MILLER (Financial Analyst, FBR Capital Markets): There are currently two million homes working through the foreclosure process now, and this is like a giant highway. If you stop the first car, all the cars behind it have to stop.
KEITH: He says the 50-state investigation may only slow this process down. The attorneys general say they know the stakes are high, and by working together they hope to put an end to the uncertainty sooner rather than later.
Tamara Keith, NPR News, Washington.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.