(Reuters) – Litigation arising from foreclosure paperwork problems could be “very damaging” to the housing market, a top U.S. banking regulator said on Monday.

Federal Deposit Insurance Corp Chairman Sheila Bair said she did not believe legislation would be needed to address concerns over whether the paperwork was properly done so long as investigations show the issue was mostly “procedural.”

State and federal officials are investigating allegations that for years banks have not reviewed foreclosure documents properly or have submitted false statements to evict delinquent borrowers.

“I fear that the litigation generated by this issue could ultimately be very damaging to our housing markets if it ends up unduly prolonging those foreclosures that are necessary and justified,” Bair told a housing conference in Arlington, Virginia.

“The regrettable truth is that many of the properties currently in the foreclosure process are either vacant or occupied by borrowers who simply cannot make even a significantly reduced payment and have been in arrears for an extended time.”

Bair argued it is important to move foreclosures quickly because until they have been cleared out of the system, the housing market will continue to struggle.

She said the volume of foreclosures requires a “global solution” that involves all interested parties.

Those parties often include servicers, borrowers, lenders, second-lien holders and investors in securities backed by troubled mortgages. Foreclosures and modifications can be held up when the interested parties do not reach agreement on how to handle a delinquent mortgage.

Bair said one part of a global solution could be extending legal protection, providing a “safe harbor,” to foreclosure proceedings if the property is vacant or if the servicer offered a meaningful payment reduction, such as 25 percent, and the borrowers could still not perform on the loan.

Read more here: http://www.huffingtonpost.com/2010/10/25/foreclosure-problems-coul_n_773724.html