Recent issues with foreclosure affidavits spawned reviews and lawsuits for mortgage servicers across the nation, and while the overall housing market may be able to shrug off the effects, if regulators or any more lenders add to the suspensions, another crisis may be at hand. Ally Financial (GJM) and JPMorgan Chase (JPM) suspended foreclosures and REO sales in 23 states, while Bank of America (BAC) declared a nationwide freeze. All three admitted employees signed foreclosure affidavits without verifying certain information or having a notary present, now known as robo-signing. Nearly all of the major servicing shops have come under nationwide scrutiny, investigations and even full-scale lawsuits from politicians, regulators and state attorneys general offices. Rick Sharga is the senior vice president of RealtyTrac, which monitors foreclosure filings across the country and releases monthly and quarterly reports. He said the effect the robo-signers are having on the overall housing market could be marginal. For now. “If the temporary ‘freeze’ on foreclosure proceedings is limited to new actions and loans in the current foreclosure pipeline in the 23 judicial states, it should have a minimal effect on the overall housing market,” Sharga said. He added that the most likely scenario would be a brief slowing of foreclosures over the next quarter while servicers re-check loan documents and put new internal procedures in place. Foreclosure activity would then accelerate in the first quarter of next year and return to “normal” levels by the mid-point of 2011. Alex Villacorta is a senior statistician for Clear Capital, which tracks home prices nationwide. He said the amount of REO weighing on individual housing markets is the single-largest contributor to price drops. In Atlanta, the worst-performing market in August, the REO saturation rate was 66%. Meaning, REO has taken up two-thirds of the market there. “If there were all these moratoriums coming up with all these AGs calling for halts that slows the overall flow, then it has a potential to decrease this rate of new REO material coming onto the market. The REO saturation could decrease as well,” Villacorta said. Meaning home prices could get a much needed bump, if only for a short amount of time as Sharga said. The most active part of the housing market by far is the lower-tier price range of REO. Investors are identifying good deals, buying those properties up and renting them back to those who may not be able to afford a home (or who may have been recently evicted from another). “If there’s this perceived, rather real or not, notion that all these REOs are going to dry up soon, that could push competition. The investors would then increase their bids,” Villacorta said. But if any more lenders or regulators announce a suspension, the already fragile housing market may begin to buckle. Sharga said REO sales account for 30% of the market, and taking almost a third of all sales away could have “serious consequences” for an unstable market. It all depends on how many more banks suspend these sales. “An overall moratorium would also delay foreclosure processing on thousands of homes, delaying their entry onto the market beyond the critical spring selling season, adding to the glut of distressed inventory, probably causing further deterioration in home prices, and perhaps triggering yet more foreclosures,” Sharga said. “And, at a minimum, extending the housing downturn by at least another two quarters.” Currently only Ally, JPMorgan Chase and BofA have suspended foreclosures. While PNC Financial (PNC) has said it is currently communicating with lawyers over the issue, Wells Fargo (WFC) has stood by the accuracy of its documents, and a spokesman for HSBC Holdings (HBC) told HousingWire that it regularly reviews its process, alluding it may not suspend foreclosures. Write to Jon Prior.