Banks have screwed up in mortgage lending big time.

Of course, they gave out loans too easily on crazy terms that has created the current housing crisis.

You’ve surely heard about the "robo-signers" who have allegedly signed upwards of 10,000 "sworn affidavits" and similar statements per month which are necessary to process foreclosures.

Also, some courts have found that MERS (the "Mortgage Electronic Registration System" which tracks changes in ownership of mortgage notes without recording the changes in the appropriate county) violates State recording requirements and is not a proper party to process a foreclosure.

These two bombshells are going to have a dramatic affect on pre-foreclosure properties. Already, Old Republic Title will not insure the sales of REO properties for Bank of America and most, if not all, large banks with out-of-control foreclosure units.

So how will this impact residential real estate markets?

No one can predict for sure, but some outcomes seem likely. I encourage you to read this entire letter, even though it’s long. (Yes, there’s even a special offer near the end.)

First, the banks can usually turn to the Obama Administration and State Legislatures for help in these situations. But with elections less than four weeks away, it’s unlikely than any politician will make any move that looks sympathetic to the banks. Nothing will happen until there’s a "lame duck" Congress who is no longer accountable to the voters.

Secondly, there’s going to be serious market affects. Hundreds of thousands of foreclosures will be delayed indefinitely. It may become so difficult to insure title for a foreclosure that banks only avenue of rapid liquidation will be short sales.

Even investor-unfriendly banks like WFB, BofA and Chase, will likely find retail buyers sitting on the sidelines looking for the bottom of the market and be economically forced to become more investor-friendly.