JNN 16 Nov 2010 : A US federal watchdog has warned that American banks could face billions of dollars in losses over widespread problems in foreclosure paperwork.

In its latest report released on Tuesday, the Congressional Oversight Panel drew out a range of possible outcomes for the foreclosure paperwork discrepancies that emerged in September.

The 125-page report said that the most optimistic scenario would prove concerns were “overblown” and banks would be able to resume work as soon as possible.

However, it warned that the scandal could become disastrous for the banks, leaving them vulnerable to a wave of legal challenges if the banks are unable to prove that they own the mortgage loans they claim to own.

The validity of some 33 million mortgage loans are questioned and could result in billions of dollars in unexpected losses.

The panel, which oversees the US government’s Wall Street bailout, also indicated that bank losses could lead to “even greater disruptions” in the already troubled housing market.

US banks are accused of signing hundreds of foreclosure documents without proper review each day. The illegal practice has been labeled as “robo-signing.”

The fiasco has reignited public anger with banks which received billions of dollars in taxpayer aid during the financial crisis which officially began in 2007.

Giant banks such as Bank of America, JPMorgan, Chase, and GMAC have already suspended tens of thousands of foreclosures across the country, resulting in substantial losses for the companies.