Standard & Poor's verdict was pretty predictable but still sever: the volume of distressed residential properties in the country is the primary factor hindering a full recover in the housing market.

The accelerated pace for default make the market unable to quickly absorb the excess volume and it has created a large shadow inventory, which is defined by S&P as outstanding properties whose borrowers are 90 days or more delinquent; properties currently or recently in foreclosure and properties that are owned by the lender but have not been resold, or REO.

S&P also included 70% of properties on which the mortgage delinquency has recently been cured through a modification. Diane Westerback, managing director at S&P, explained that these properties are included in the agency's shadow inventory equation based on historical performance trends, S&P expects 70% of modified loans to eventually re-default and again become part of the industry's distressed property supply.

The S&P report is based on data through the end of Q3 2010 and the numbers are shocking: the nation's inventory of distressed home is more than $450 billion - a log jam that will take 44 months or more than three and a half years to clear from the market.

"Our estimate for the average time to clear these properties in the U.S. has increased by about 25 percent since the start of 2010 and increased 7 percent between the second and third quarters," S&P says.

Comparing the Q2 and Q3 reports we can see a $10 billion decline in Q3, which suggest a strong consumer demand. But Westerback says the drawn out clear time is also because lenders are taking longer to foreclose on a property that is seriously delinquent for months. There have been a lot of pressure to slow down the machine, she said.

"What really concerns me most about the servicers," she said, "is that the percentage of loans in the 90-plus day delinquency bucket but not yet in foreclosure is almost equal to the percentage of loans that are in the process of being foreclosed. So my concern is, why aren't servicers pushing those into the pipeline," Westerback questioned, referring to the growing volume of loans that are already more than three months past due and in default.

"One would hope there's some ray of hope on those loans, although we're not really seeing that in terms of cure rates," she continued. Westerback believes servicers are simply "delaying the inevitable and pushing the timelines out until there's more stability in the market."

Although a foreclosure machine acceleration would help the recovery of the housing market, it won't solve the problem by itself.

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