By Mark Whitehouse

Banks aren't making much headway in working through the giant pile of problem home loans they have accumulated. That's providing a windfall for people who can’t pay their mortgages. It also means the hangover from the housing bust is far from over.

As of June, the average homeowner in the foreclosure process hadn’t made a payment in 587 days, according to the latest data from LPS Applied Analytics. Some of those people have long since vacated their houses. Others are living rent-free, or generating income by renting out the houses.

The backlog is most acute in states where banks must pursue foreclosure through the courts -- a feature that makes the banks more likely to encounter legal troubles, such as those they’ve had with improperly prepared foreclosure documents. In New York, for example, LPS calculates it would take 713 months at the current rate of foreclosure sales for banks to unload all the homes tied to loans that are seriously delinquent or in the foreclosure process. The number for New Jersey is 644 months.

The inventory of distressed properties, which LPS estimates at 4.1 million homes, will weigh on home prices for years to come. What’s more, new delinquencies are still adding to the pile at an outsized pace. Some 1.27% of all loans that were current as of December 2010 were seriously delinquent by June of this year, according to LPS. That's well below the rate that prevailed in 2009, but still much higher than the pre-crisis level.

Given the vast challenge of working through all the foreclosures already happening and yet to occur, radical measures to keep people in their homes -- such as principal reductions on mortgage loans -- could start looking more attractive.

-0- Aug/04/2011 20:13 GMT