The U.S. Treasury’s housing rescue boss said today that reviews and investigations into the use of faulty foreclosure documents will likely delay the sale of thousands of distressed properties, exerting downward pressure on home prices.

It may take several months for mortgage servicers, state courts and law enforcement agencies to clear up questions over foreclosures, Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office, told the Congressional Oversight Panel .

Longer foreclosure timelines will push down prices, particularly for vacant houses, and uncertainty over the status and titles of already foreclosed homes may also discourage buyers.

"This would hurt homeowners and home buyers alike at a time when foreclosed homes make up 25 percent of home sales," Caldwell said in prepared testimony. "Together, these two factors may exert downward pressure on overall housing prices both in the short and long-run."

All 50 states have launched a joint investigation into whether mortgage servicers filed faulty affidavits in foreclosure cases, threatening a new wave of problems for lenders and placing a cloud over the long-delayed recovery of the nation’s distressed housing market.

Caldwell said the Obama administration’s response to the controversy is aimed at providing clarity. Major banking regulators, including the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, are reviewing foreclosure procedures.

"The issues that have been alleged raise significant questions about the accuracy, fairness and even legality of several mortgage processes," she said. "We are working to address those issues that are problematic, and to clarify for the public those issues raised that are not in fact problems."

Nonetheless, she said Treasury believes that while the probes may in the near-term temporarily reduce the number of foreclosed houses available for sale, most distressed properties affected by the controversy will "eventually come onto the market."

Caldwell also scolded mortgage servicers that have reported possible filings of faulty foreclosure affidavits, including Ally Financial, JPMorgan Chase and Bank of America.

"The reported behavior of these mortgage servicers is unacceptable," she said. "Servicers must comply with all applicable laws and regulations and be held accountable if they do not. We are working with our partner agencies to ensure that servicers improve their foreclosure processes." (Reuters)