Revelations that the nation’s biggest banks may have fudged crucial documents in their rush to reclaim tens of thousands of homes have the public in an uproar. Foreclosures and the paperwork nightmare have attorney generals from all 50 states conducting sweeping investigations into the industry’s foreclosure practices. The nation’s top financial regulators have also ordered reviews. And Bank of America, JP Morgan Chase, GMAC and other big banks announced a few weeks ago that they were halting foreclosures in much of the country.

But now, banks are slowly getting back into the foreclosure business. And on Wednesday, Shaun Donovan, the secretary of housing and urban development, tried to ease concerns by saying that none of the problems threaten the health of the financial system.

The foreclosure crisis seems to be either in meltdown or in repair. Which is it? An overview here:

How can Bank of America and GMAC halt foreclosures, then resume them a few weeks later?

It’s something of a public relations game. Before announcing the freeze, the banks were fairly confident that the foreclosures were valid — even if some of the paperwork was in error. But they still needed to show that they were taking the problems seriously.

Behind the scenes, the banks dispatched hundreds of lawyers and executives to review, correct and resubmit the proper documents. The preliminary reviews suggested that the problems were not as deep as they feared, giving them the confidence to resume evictions.

How big is the problem?

Nobody really knows. Four of the 10 largest banks are examining hundreds of thousands of cases, and refiling when appropriate. Laurie Goodman, an analyst at Amherst Securities, estimates that as much as $154 billion of mortgages could be exposed.

What exactly were the problems?

Many banks were plain sloppy. They allowed a single employee to sign off on thousands of documents attesting to information he or she did not know to be true — “robo-signing.” Some legal documents were incorrectly notarized.

And computers got the best of them. Many banks relied on an electronic mortgaging filing system to stand in for them in the foreclosure process. Now lawyers for homeowners are disputing whether that filing system kept proper track of the paperwork and can have a legal claim on the property.

So, who is the victim here?

So far, there are few reports that banks have mistakenly foreclosed on a homeowner. In many of these cases, borrowers are more than a year behind on their payments, and do not currently live in the home.

If it’s a bad loan, then why worry about a glitch in the paperwork?

It’s a longstanding requirement — going back to William the Conqueror — that banks prove their ownership of the mortgage. Consumer advocates say that giving troubled borrowers due process is a matter of fairness.

Some suspect that the banks cannot validate the accuracy of their foreclosure documents because the paperwork on the original mortgages was missing or never submitted. If that’s the case, the courts may not look kindly on the omission, and that glitch could turn into a nightmare.

Who is really at fault?

The foreclosure system, which became like Lucy and Ethel, overwhelmed at the chocolate factory. As millions of homeowners fell behind on their mortgage payments, the banks were overwhelmed. Their loan collection operations were designed to process regular payments, not handle the specialized needs of troubled borrowers.

Computer systems were outmoded; the staff lacked the training and numbers to respond properly to the flood of calls. Traditional checks and balances on documentation slipped away as filing systems went electronic, and mortgages were packaged into bonds at a relentless pace. To make matters worse, many tasks were outsourced, with little oversight by the banks or their federal regulators.

The banks say they tried valiantly to cope, including hiring more employees. Even so, many acknowledge that they were caught flat-footed.

What does the mess mean for the thousands of people on the verge of losing their homes?

For most troubled borrowers, not much. Foreclosures may be delayed, giving some troubled homeowners at least a few more weeks of relief — and perhaps more, if they have an aggressive lawyer.

So, why is this mess important?

An industrywide moratorium, or lengthy delays, could seriously hamper a recovery of the housing market. Many areas hit hardest by the housing crisis, like California, had been seeing an increase in foreclosure sales — a sign that the market was starting to heal. Homes that sit in foreclosure, especially vacant ones, can depress property values and consumer confidence.

That, in turn, could ripple through the economy. Banks concerned about the value of their own real estate portfolios might pull back sharply on lending, triggering a repeat of the credit crunch.

That is why the Obama administration wants the foreclosure system back on track — and to stamp out calls for a national freeze.

In February, St. George’s rates of foreclosure went up compared to its rates last year.

St. George’s foreclosure rate among existing mortgage loans stands at 4.19% for February, 1.88% higher than last year’s 2.31%. In fact, the overall activity of foreclosure in St. George stands higher compared to the national rate of foreclosure, which stood at 3.17% this February – a difference of 1.02%.

The rate of mortgage delinquency in St. George has also gone up. In the month of February this year, 11.13% of all mortgage loans happened to be at least 90 days delinquent as compared to the 6.11% of last year – a 5.02% increase.

Foreclosures do not appear to be a problem is Rancho Santa Fe as the Rancho Santa Fe real estate market continues to remain strong.

It has been said that a small foreclosure surge will not significantly effect the sales of homebuilders this year because home sale inventory and new construction have fallen quite far below average levels in a lot of cities. Although it would be preferable not to have any more supplies come through foreclosures, a bit more will not totally hurt the markets.

After the housing boom collapse, foreclosures ended up soaring, which produced a glut in a lot of markets and sent home prices down. This resulted in homebuilders struggling to entice buyers into their homes instead of the discounted homes owned by banks. However, recent steady sales in a lot of markets ravaged by foreclosures have slowly sent down the amount of these homes in today’s market.

Additionally, a lot of banks slowed down the process of foreclosure, occasionally choosing to modify mortgage loans at risk. This also ended in less bank-owned properties in the market.

Naturally, the last thing anybody would wish to see is a flood of foreclosures, as predicted by economists who stated that it would happen if borrowers that have option-ARM mortgages choose to default in the near future. A lot of their loans are scheduled for resets, which could possibly trigger big increases in monthly payments.

This does not mean that marketplace concerns should be forgotten. Naturally, risks do exist that are very real and they should never be shoved aside for anything.

Do you remember last year being the year of foreclosures? Well, this year looks like it is about to become the year of short sales.

In Phoenix alone, the amount of finished short sales, in which lenders sold homes for a lower mortgage value, went up by 60% at the end of 2009. Last month, bank-owned home sales went down by 25% compared to a year before, as traditional sales went up by 9% and short sales went up by 16%.

Agents of real estate have complained for years about the trouble in pulling off short sales since tons of third parties could be involved – second and first mortgage holders and companies of mortgage insurance, for instance. Locking up short sale approvals could take months, though, and make possible buyers leave lower appraisals or deals to ruin the deal.

Unfortunately, this gets on agents’ nerves because such short sales allow banks to stay away from foreclosures and deal with property management on their own. This oftentimes ends in better prices compared to what the bank could receive if properties foreclosed.

There have been predictions that short sale upticks will occur because total sale shares could offer up unexpected home price lifts this 2010. We can only hope that this is true.

It seems that the government is hitting three birds at once with a single far-reaching change in policy. The government wants to help the investors that fix foreclosures, communities troubled with a lot of foreclosed and bank-owned houses, as well as homebuyers with low down payments all at the same time.

Starting this month, the rules have changed and looks to score at the goal. For years now, the FHA’s strict prohibition of not insuring house mortgages if sellers have owned it for not more than 90 days has been around – a response to frauds in house inflations.

This rule has been around for almost ten years now but is now being suspended for 2010. Lenders will once again be offered up mortgage insurance by the FHA for several purchases where sellers close on properties not more than 90 days earlier.

The overall goal of this would be to improve renovated house sales to buyers since, with skyrocketing foreclosure levels, a lot of communities are now face-to-face with too many bank-owned properties lying around unsold and in bad repair.

By getting rid of this 90-day rule, there are now higher chances of private investors bidding on such houses and fixing them up to sell to buyers who can now get early access to financing with the FHA, which provides down payments of 3.5%.

Despite this policy revision, no floodgates are opened to renovations after foreclosure, but here are two primary limitations made to protect the FHA and the end buyers at the same time:

- Run-ups of prices have to stay fairly justifiable and modest from the acquisition of the investor to what the applicant pays. In general, there is a limit of 20%.

- No interest conflicts or game-playing among realty agents, buyers or sellers involved within the deal.

If the price ends up going over 20%, the FHA would expect lenders to have more documentation regarding renovation expenses that investors make to justify the huge increases in price. Lenders also have to order independent inspections of property, so that buyers understand the improvements and the physical condition of the house.