A foreclosure sign in front of a home in Miami Beach, Fla.
A foreclosure sign in front of a home in Miami Beach, Fla. - 
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Kai Ryssdal: You know the basic story line so far. About two weeks ago, we learned banks have been rushing through their foreclosure paperwork without actually reading it or even making sure they really owned the mortgage for the house they were foreclosing on. A number of big banks -- Bank of America, Ally Financial among them -- have put what is at least a temporary stop to things. It has all attracted the attention of state prosecutors. This week, probably tomorrow, a group of as many as 40 state attorneys general are going to announce an investigation into the mortgage-servicing industry.

Our Washington Bureau chief John Dimsdale explains that they're going to try to pressure lenders to reconsider some of those foreclosures.

John Dimsdale: States have been trying to jawbone lenders into helping people keep their homes by maybe extending the length of some mortgages, or lowering interest rates or maybe even reducing the principle. That's called "marking the home value to the market."

So far, none of that's worked. Banks want bad assets off their books, and foreclosing and selling accomplishes that, says economist Jim Gaines at Texas A&M University.

Jim Gaines: The lenders are right now looking at their books and saying, we're still carrying a lot of bad assets. We really couldn't afford right now to truly mark to market. A lot of us might go insolvent, because the banks are still trying to earn their way out of a big hole.

But if an investigation reveals banks have violated state laws with sloppy foreclosure paperwork, they may owe hefty fines. Tom LaMalfa at TSL Consulting thinks the attorneys general see dollar signs.

Tom LaMalfa: There is a desire on the part of many states to get money from the banks to help pay huge cost of the foreclosure crisis on their states and on their municipalities.

And Jim Gaines at Texas A&M says banks may be forced to tell states they'll be more open to re-negotiating loans.

Gaines: They may work some kind of agreement or settlement to A. mitigate whatever that financial liability might be, and then B. to also allow the process to continue.

Because, he says, delaying foreclosures only postpones the day of reckoning for billions of dollars in bad assets still festering on lenders' books.

In Washington, I'm John Dimsdale for Marketplace.