Bloomberg’s on the same track:

The extent to which there’s a documentation problem is unknown to investors, Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP in Los Angeles, said in an interview. If widespread flaws are found in the paperwork for mortgage- backed securities, it could roil a housing market already struggling with a freeze in foreclosures prompted by legal challenges to the documents mortgage servicers used to seize homes of delinquent borrowers, he said.

“If people say that you cannot prove that you own the loan, it could be really cumbersome to untangle,” said Gundlach, whose firm manages $5.5 billion in investments, mostly mortgage-backed securities. “It has the potential to spiral into much, much more. There have been many twists and turns to the foreclosure process since the credit crisis started and this is one more turn of the wheel, and it can spin out of control.”

The banks have dug themselves a really big hole here. Whether they’ll be buried in it remains to be seen, but these cats may be on life No. 9 if the worst-case scenario arises here.

TARP II just ain’t gonna happen.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.