Moshe - certainly many mortgages were/are not properly documented by the banks. Mortgage procedures were written for a time that required paper and signatures. By shortcutting procedures, the banks will have a difficult time quickly foreclosing on a property. However, homeowners will not owe less because of the lack of a paper trail. The remedy for homeowner that had its house foreclosed upon is to pay what is owed. The remedy for the banks is to properly document the mortgage which will take time but is doable.
With regard to decreasing house prices and the resulting lower mark-to-market of the banks portfolio of loans - this will result in a sever bank crisis as the banks will not have sufficient reserves to cover such losses (decreased portfolio value). This will cause many banks to fail and at minimum cause most banks to stop or limit loaning new money.
The lack of properly documented mortgages will not result in any significant benefit to any homeowner other than delaying a foreclosure or by a bank modestly adjusting the amount owed or terms of the mortgage.
Best,
zarco