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Foreclosures are expected to increase as more Americans drop out of HAMP

The Obama administration’s Home Affordable Modification Program aimed at providing relief to distressed homeowners does not seem to be having its intended effects, according to the Associated Press. As more Americans are forced to drop out of the program, the number of foreclosures in the U.S. is expected to climb.

To date, the $75 billion program has seen nearly one-third of its 1.24 million initial applicants drop out or face disqualification, making the number of people that have left the program higher than the number of Americans that received permanent mortgage modification loans under HAMP, the AP reports. After 155,000 participants left the program in May, the total number of Americans that have dropped out as of March 2009 stands at 436,000. A total of 340,000 homeowners have received permanent modifications and seen their monthly mortgage loan payments drop, the AP said.

Initially, most banks did not require borrowers to provide the thorough documentation needed to prove their income. However, when banks began seeking the information, many homeowners found they were not eligible for the modification or dropped out, the AP reports. While some banks attribute the high number of disqualified individuals to the homeowners not sending in the correct paperwork, some distressed borrowers argue that they sent in the necessary documents many times over and received no response from the banks, according to the AP.

The program has now tightened its standards, requiring borrowers to provide proof of income, two recent pay stubs, and their most recent tax returns from the Internal Revenue Service, the AP said.

Experts expect to see foreclosure rates increase as job growth remains stagnant and many Americans are unable to qualify for modifications. A recent report shows that nearly 75 percent of homeowners that have received a permanent modification will re-default within one year.