What, though, if the documents turn out to be the product of widespread, systematic fraud? "That's not a good scenario," he says. Resolution would take longer, and the length of the housing downturn would correspondingly be extended. "You're already seeing class action suits. What if somebody was foreclosed on, they lost their house, and a new buyer has moved in? Is there a precedent for overturning a foreclosure? A whole range of complicated and unimaginably bad things could happen."
Rep. Dennis Cardoza, D-California, who has drafted legislation to stabilize foreclosures, calls the paperwork scandal "a cloud over the whole mortgage and banking industry. It could delay things two to 10 years. I don't know how it will all shake out, but it's going to require ongoing attention from Treasury and from Congress."
Professor Mayer, who helped Cardoza draft his bill, agrees. "If some court says the legal basis for these mortgages isn't there, this is hugely significant. In any event, it throws a huge amount of uncertainty into the mix."
Even where corrupt documents were the result of honest error, he points out, homeowners have suffered. "People who played by the rules still found themselves thrown out of their homes. Trial lawyers are licking their lips."
A licking sound can be heard coming from the offices of Linda Tirelli, a plaintiffs' lawyer in White Plains, New York. She represents clients facing foreclosure, including Silvia Nuer of the Bronx, who is suing Chase for having relied on inaccurate documents. What's Tirelli's take on the future?
"I see it as this: The public are the Little Dutch Boy, with their finger in the dam. The flood gates haven't even opened yet." The scandal, she says, has energized homeowners. "The public is so much more empowered over this. You have a legal argument, now, to go in there and fight Goliath. We're choking them on their own documents."
Just digging up the paperwork, she predicts, will be a Herculean task: "The banks tell me it can take four to six months to locate a document. They'll need to go back and get the documents. They need to say they have the real ones or admit they don't."
During that process, she thinks, there needs to be a national moratorium on any more foreclosures. Banks that can't produce valid paperwork will find themselves in a tough spot, unable to foreclose.
"They're going to have to give some amazing deals--real reductions. They're going to have to sit down and work with customers. That's what they should have been doing all along."