NEW YORK (Reuters) – All 50 US states launched a joint investigation of the mortgage industry yesterday, a move some experts fear will cause uncertainty and threaten the recovery of the fragile housing market.

The state attorneys general are looking at allegations some banks used shoddy or fraudulent paperwork to remove struggling borrowers from their homes during a foreclosure crisis that is one of the most visible wounds of the 2007-2009 recession.

"We are in the fourth year of a housing and economic crisis that was brought on by lax practices of the mortgage lending industry," Minnesota Attorney General Lori Swanson said in a statement. "The latest allegations of corner cutting and slipshod paperwork are troubling, but perhaps not surprising."

Industry experts warn the investigation could put the brakes on foreclosure proceedings. One of every four homes sold in the second quarter was a foreclosed property and any slowing could have an impact on the broader economy, as the housing market traditionally drives recoveries after a downturn.

The United States has an $11 trillion residential mortgage market.

Barclays Capital analysts said if banks were able to show that the bulk of the foreclosures were handled properly then the impact on their results would be minimal. But it could take some time before a full picture emerges, they said.

The controversy has refocused attention on the foreclosure crisis just weeks before the November 2 congressional election in which Democrats look likely to suffer major losses due to voter unhappiness over President Barack Obama's economic policies.

The states are investigating the use of "robo-signers" — people who sign hundreds of affidavits a day — by banks and companies that collect monthly mortgage payments. It is alleged they did not properly review the documents they were signing.

Using robo-signers "may constitute a deceptive act and/or an unfair practice or otherwise violate state laws," the attorneys general said in their joint statement. The investigation aims to put an immediate stop to improper procedures and establish a mechanism "for more effective independent monitoring of future mortgage foreclosure practices," Ohio Attorney General Richard Cordray said.

"What we have seen are not mere technicalities, as some suggest," he said.

JPMorgan Chase, the second-largest US bank, said yesterday it had identified some issues in its review of foreclosure affidavits but was "pretty comfortable" that its decisions to foreclose had been proper. "We're not evicting people who deserve to stay in their house," chief executive Jamie Dimon said on a conference call.

JPMorgan, which posted higher-than-expected profits yesterday, is among three big mortgage servicers to announce a halt to some foreclosures pending reviews.

Bank of America Corp, the largest US mortgage servicer, has temporarily halted evictions nationwide. Other lenders have declared more limited suspensions or left their foreclosure policies in place.

Analysts at Citi said investors did not appear too fazed about the questions being raised about banks' paperwork.