Attorneys General Investigate Faulty Foreclosures

All 50 of the nation's attorneys general announced a joint working group on foreclosures today, an effort to look into allegations that mortgage companies mishandled documents and broke laws -- putting hundreds of thousands of homeowners across the country at risk.

Indiana's attorney general, Greg Zoeller, says the united approach will be more efficient: "I mean we all have the same issue -- how big is the problem? I mean, right now...we're talking about the unknown."

The problem that started the uproar over foreclosures was this-- even though a group of bank employees prepare the legal documents for a foreclosure, in 23 states, a single official has to sign the papers and make a pledge to a judge.

"The person says I have read the foreclosure documents," says Peter Wallison of the American Enterprise Institute. "I've read the mortgage documents, and I believe the foreclosure here is justified."

But the signing officials, swamped with thousands of foreclosures a month, did not review all the documents as required. And that could pose problems...legal ones.

"That all is supposed to be done carefully and properly under the law in this country," says Ohio Attorney General Richard Cordray. "And in fact, these affidavits are fraudulent."

But no one knows whether the problems are any broader. Cordray, who wants a freeze on foreclosures, and a $25,000 fine on every infraction, concedes no one knows if the foreclosures themselves are justified or not. "There's a lot that we don't know," admits Cordray. "We're at the beginning of this case."And that's why several AG's flatly rejected any notion of a freeze, which they fear would hurt their states even more.

"I think we have to keep the market moving," says Zoeller. "So the idea of suing or bringing everything to halt or a moratorium is not something I'm willing to consider right now."

And housing analysts agree. One of them, Anthony Sanders from George Mason University says that was a political urge as the controversy began.

"I think everyone right now is screaming about this in the press. So a natural reaction was first-- ' Moratorium! Let's stop everything!" But then he says they realized how damaging that could be. "Oops that's a bad idea that might collapse the whole housing market, so we'll investigate."