Hopes for a recovery in America's anemic housing sector have been dashed by record-setting numbers of foreclosures - more than 100,000 in September alone. In addition, lenders stand accused of sloppy paperwork and improper procedures in taking possession of an untold number of homes, prompting state investigations and even discussion of a nationwide moratorium on foreclosures.
It was a rash of home mortgage defaults that helped spark the 2008 financial crisis and helped plunge the United States into the deepest recession of the post-World War II era. Today, the U.S. economy is growing, if only barely so. But the recovery has yet to reach the housing sector, where prices remain depressed and foreclosures are on the rise.
Adding to the woes are reports of widespread abuses in the foreclosure process itself, with allegations that lenders haphazardly signed off on a multitude of foreclosures with faulty or even falsified paperwork.
"Their [lender's] goal is to move through a foreclosure case as quickly as they can," said Florida foreclosure attorney Christopher Immel. "That cut short people's opportunities to try to get back on their feet."
Already, several banks have suspended foreclosures in dozens of states. America's biggest private lender, Bank of America, has stopped foreclosure proceedings nationwide. Attorneys general in all 50 states have banded together to probe the matter and attempt to craft a solution.
"The whole idea of the investigation and the dialogue, which continues with the companies, is to not have lawsuits," said Iowa Attorney General Tom Miller. "So that we come to a resolution that is good for homeowners, fair to the lenders, and as a result, good for the public interest."
Some members of Congress have urged President Barack Obama to impose a nationwide moratorium on foreclosures until abuses are corrected. But the White House says halting foreclosures would have unintended consequences that could further damage the housing market.
Atlanta-based financial analyst Ty Young agrees.
"It is a bad idea, a horrible idea, for the federal government to put a blanket moratorium on all foreclosures," he said. "If they stop foreclosures, there will be no more real estate loans. Mortgages are based on the collateral of the home. If you can't foreclose, you can't take the collateral. And that means the mortgage companies can't loan. And if mortgage companies can't loan money, then buyers can't buy real estate."
Young says bringing down the U.S. foreclosure rate could take years. He predicts the fallout from the crisis could rival that of the 2008 financial meltdown or the implosion of many high-technology U.S. firms nearly a decade ago.
"This foreclosure mess is escalating to as big a mess as the mortgage crisis," said Young. "And I do believe, at some point in the future, we'll talk about the dot com [stock] crisis, the banking crisis, and the foreclosure crisis in the same light."
Most American homes are bought on credit, with a loan - also known as a mortgage - paid off over 30 years. If a borrower stops making payments, the bank may take possession of the home, which is called a foreclosure. Banks then sell the home to recoup the money paid out in the original loan.
Many foreclosures stem from a borrower losing a job and lacking income to pay the mortgage. But the drop in U.S. home values has led to a new class of non-payers: borrowers whose mortgages exceed the value of their homes and who simply walk away from the investment.