The Treasury Department is withholding financial incentives from three of the 10 major mortgage servicers participating in the Obama administration’s Making Home Affordable loan modification program, the department announced today in its latest report.

For the first time, the administration’s monthly "housing scorecard" contained compliance assessments of the 10 largest servicers in the program. Of the 10, four were deemed to need "substantial improvement" in several metrics in the first quarter: Bank of America, NA; J.P. Morgan Chase Bank, N.A.; Ocwen Loan Servicing LLC; and Wells Fargo Bank, N.A.

The Treasury Department will withhold incentive payments from all but Ocwen Loan Servicing, which acquired a large servicing portfolio during the quarter that negatively affected its compliance results.

Incentive payments include payments for every successful permanent loan modification instituted under the Home Affordable Modification Program (HAMP) and for every completed short sale or deed-in-lieu under the Home Affordable Foreclosure Alternative Program (HAFA), the report said.

In April, more than 29,000 homeowners received a trial HAMP modification and nearly 29,000 additional homeowners received a permanent modification, bringing the total number of permanent modifications under the program to nearly 700,000. Since June 2010, 70 percent of the trial modifications started have been made permanent, the report said.

"While we continue to get tens of thousands of new homeowners into mortgage modifications each month, we need servicers to step up their performance to meet the needs of those still struggling," said Tim Massad, acting Treasury assistant secretary for financial stability, in a statement.

"These assessments set a new benchmark by providing an unprecedented level of disclosure around servicer performance and will serve to keep the pressure on servicers to more effectively assist struggling families."

Compliance testing includes three categories: identifying and contacting homeowners; homeowner evaluation and assistance; and program management, reporting and governance. If the three affected servicers fail to improve in subsequent quarters, financial incentives may be permanently withheld, the report said.

Six of the 10 servicers were deemed to need "moderate improvement," according to first-quarter results: American Home Mortgage Servicing Inc.; CitiMortgage Inc.; GMAC Mortgage LLC; Litton Loan Servicing LP; OneWest Bank; and Select Portfolio Servicing. None were deemed to need only "minor improvement." The Treasury Department will not withhold financial incentives from those six servicers at this time, but may in the future, the report said.

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