For the past couple months of this newsletter, I’ve covered the impending rate resets facing those who refinanced through government programs when the real estate bubble burst. Well, I’d like to turn our attention to an issue on the other side of the spectrum: while some homeowners prepare to face their 5-year rate reset, others are still waiting to see if they qualify for aid!

A report from the “watchdog” group in charge of auditing the bailout process was recently released, and it reveals that the wait time for homeowners to hear back from banks regarding their aid application has been steadily growing, with some banks taking almost a year to respond to applications!

But why is this? Are the banks being lazy? Well… maybe, but I doubt it. There is still $22 billion in HAMP funding for them to take advantage of. And if there’s one thing banks love, it’s free money (who doesn’t)!

No, the real issue is the onerous regulations that come along with that funding. It comes with strings attached – and those strings are starting to choke the whole system to a standstill!

Here's the hard data on what's going on:

• There is $22 billion dollars earmarked for HAMP that hasn't been touched.
• Unprocessed modification applications went from 133,600 to 221,500 in the past six months (almost double).
• 30% of homeowners in HAMP have already defaulted again!

So, what's the upshot here? Well, with rate resets starting to hit en masse, a large portion of HAMP-aided homeowners already defaulting, and $22 billion of aid caught up in red tape, I think we can guess: More defaults are coming. They have to. One factor could be written off, but all three together definitely spell D-E-F-A-U-L-T.

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