Foreclosure scandal a threat to U.S. financial system

That's the word from the Congressional Oversight Panel:

Problems with documents used to process foreclosures may be serious enough to threaten the health of the U.S.’s financial system, a government panel warned Tuesday.

The Congressional Oversight Panel, formed to watch over the $700 billion federal bank bailout, said in a report that the foreclosure-document problems “may have concealed much deeper problems in the mortgage market that could potentially threaten financial stability.”

The panel’s chairman, however, cautioned that it is difficult to know whether such threats will come to pass. “It could turn out to be nothing, but it could turn out to be a big deal,” former Sen. Ted Kaufman, the panel’s chairman, told reporters.

The panel urged the Treasury Department and bank regulators to conduct new stress tests to see whether banks can handle the risk that investors will force them to take back billions in loans packaged into securities. Some investors are trying to force banks to do so, partly as a result of revelations about flawed documents.