The past mistakes of the real estate industry is coming back to haunt not just then industry but the whole U.S. economy. When the real estate market crashed, analysts have all but tried to come up with solutions to revive the housing market. With the recent mess of foreclosure paperwork, reviving the market is not the biggest concern for everyone right now – a global banking group warns that the country just might be headed to another to recession.

Everybody already knows about the big mortgage lenders – such as Ally Financial Inc., JPMorgan Chase & Co., and Bank of America Corp. – suspending foreclosure proceedings and evictions to review paperwork amidst allegations of robo-signing, or signing off foreclosures without checking the accuracy of the paperwork. What people do not know is that the recent developments could force these banks into scaling back lending. And this, according to global banking group BNP Paribas SA, might push the economy back into recession.

With talks of foreclosure fraud, investigations are being launched left and right and speculations of greater losses are rising. Mortgage-bond investors forcing banks to buy back while challenging underlying debt is feared to spear greater losses for the U.S. economy. With President Barack Obama supporting a coordinated investigation by attorneys general in 50 states regarding accusations of false documentations, people are talking about increasing costs for lenders.

London-based BNP analysts Mehernosh Engineer and Olivia Frieser say the mess is rooted in the fact that during the real estate boom, ensuring the right documentation for a loan has not been a priority. Aside from that, lenders have also been lenient with so-called ninja borrowers – those who have no income, job, or even assets. And ninja borrowing coupled with careless documentation will most likely create another recession.

“Under the ultra-bearish scenario where fraud is proven, originators will have to take significant losses and this will seriously constrain loan-making ability, as well as economic growth. The probability of a double-dip scenario will rise very significantly,” shares Enigineer and Frieser.

If bond originators resolve the case of missing paperwork over the next month, that will be the best possible outcome for the U.S. housing industry. Delinquency rate on home loans is currently at 9.5% and 28% of mortgages are in negative equity. This proves, writes the BNP Paribas analysts, that investors should start looking at how important the U.S. housing industry is in pulling the economy up.