Financial institutions in the United States, particularly the nation’s leading lenders and mortgage servicers, have had a tough go of it in the last five months of 2010.

Back in late August and early September, news was startling to trickle out about the possibility of foreclosure proceedings being tainted by faulty documentation. It was later revealed that many mortgage servicers and so-called “foreclosure mills,” law offices who are assigned to aggressively seek foreclosures, have been using what are called “robo-signers,” to literally sign and notarize hundreds of thousands of foreclosure documents without even so much as a cursory review of said documents.

It is absolutely illegal for any certified notary or bank official to sign off on any documents without first thoroughly reviewing their contents and verifying their accuracy, and soon, through the testimony given by former bank and law office employees, the robo-signing issue reared its ugly head.

Courts throughout the country are now reversing foreclosures based on evidence given that documentation was not properly reviewed, and the issue had slowed down the foreclosure process to the point that the real estate market is glutted with properties in limbo, and investors are backing off on purchasing any properties without knowing whether or not the title to the home is cleared.

All of this points directly back to the financial institutions and banks. Bank of America, JPMorgan Chase & Co., Wells Fargo, Ally Financial, Fannie Mae and Freddie Mac have all at one point or another stopped doing foreclosures until internal foreclosure documentation policies were thoroughly reviewed.

Bank regulators and state attorneys general even got into the mix, starting their own investigation in October, with the nation’s attorneys general demanding that banks and lenders start offering more loan modifications in order to stave off an even bigger wave of foreclosures. Thus far, the banks have been slow to respond, basically saying that their responsibility is toward their shareholders.

Late last month, Congress joined the push against banks, setting up hearing and issuing subpoenas to bank leaders and industry analysts in an effort to get to the bottom of the foreclosure mess.

All of this brings up a question: Will consumers continue to put their faith in the nation’s leading banks, knowing that they were complicit in the current foreclosure crisis?

Some reports have indicated that a growing number of consumers have pulled their money out of the larger banks, opting instead to turn to local neighborhood banks, looking to find a better customer service avenue.

Reckoning day will come for the leading banks in the United States in early January, when the new Congress is sworn in and final summaries are expected in several different investigations. While many experts contend that the major banks will be able to weather the storm, they may not be able to overcome the obvious drop in consumer confidence.

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