This hasn’t really hit the headlines yet as a systemic threat, but it could stretch out the process of clearing up the US housing market for a long time. Felix Salmon has a good post. If things get as bad as he suggests then then the MBS market could lock up. In which case, the Fed would perhaps step into the market again as part of QE2, but only if they decide they have the legal authority to take credit risk (which I think they can only do in a “crisis”).
For technical reasons, lots of foreclosures in the US turn out not to have been legal. Several big banks have now stopped foreclosures altogether.
I don’t see a danger to risk assets from this episode yet, but if the market focusses on it then it could become an issue.