The daughter sounds like she was in shock and denial, which is totally understandable. More than likely, the woman's mother gave birth to this baby. The girl in the picture not being recognized by the daughter is interesting. But perhaps the girl in the picture was a sibling on the father's side of the baby's family tree. Just a wild guess, but you never know. They certainly seem to have had different fathers, and I doubt this woman's father knew anything about this baby from his wife's past.
I wonder if the black pants were from the 1950s or later and if they looked like something the woman's mother would wear. It is remotely possible the woman's mother was keeping this for some other relative of course. Did she have any sisters, cousins, etc, that may have already died? Or may have given her stuff for safe keeping? I doubt she was unaware of the baby, but it isn't impossible she was keeping someone else's secret, whether that person was a relative or a friend. Without DNA results, nothing is 100 percent. It's surprising the baby was left with household stuff in a foreclosed home, but maybe she forgot that's where she put that suit case. Elderly people can be absent minded and dealing with financial stress involving that house may have been another reason that's where the suitcases with the baby got left. The person who bought their house luckily didn't throw it out or open it. It was nice of them to just move the stuff to a storage unit, under the circumstances.
This is definitely a sad story. It would be interesting to have conclusive DNA results. The daughter sounds like she couldn't deal with it at the time, but maybe more at peace with it years later. Of course some people just don't want to know. Others would do anything to solve a family mystery like this.