(Updates with Massad, bank comments beginning in third paragraph.)
June 9 (Bloomberg) -- The U.S. Treasury Department will withhold financial incentives from three of the largest mortgage servicers after they failed to take required steps to prevent foreclosures under an Obama administration program.
Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. were found to need “substantial improvement,” the Treasury said in a report issued today. The banks are being penalized for failing to meet rules set by the Home Affordable Modification Program, or HAMP, which pays servicers to lower monthly mortgage payments for distressed homeowners.
“We don’t have the power to impose fines,” Tim Massad, acting Treasury Assistant Secretary for Financial Stability, told reporters. “We have the power to publicize what they’re doing. We have the power to withhold incentives. That’s what we’re doing.”
This is the first time the agency has withheld payments for poor performance. Treasury targeted the servicers in its monthly scorecard on the administration’s foreclosure prevention programs, which this month included detailed assessments of the 10 largest mortgage servicers.
A fourth servicing company, Ocwen Loan Servicing LLC, also was cited for poor performance. The company won’t sacrifice its fees because it had acquired a large servicing portfolio during the testing period, the Treasury said.
All four servicers were faulted for miscalculating borrowers’ income, errors that caused homeowners to be denied aid. Bank of America also failed to communicate with homeowners, the Treasury reported.
The penalties were first reported by The Washington Post.
Wells Fargo said the Treasury’s assessment “paints an unfairly negative picture” of the bank’s efforts because it examined loan modifications that were attempted as far back as October 2009, when the program was still in development.
“We are formally disputing this with the Treasury,” Wells spokeswoman Teri Schrettenbrunner said in an interview.
JPMorgan spokesman Patrick Linehan said the bank “respectfully disagrees with the assessment.”
“We have made significant improvements since the modifications that Treasury reviewed and continue to work hard to keep improving our processes and controls,” Linehan said in an e-mail.
Bank of America spokesman Rick Simon said the company continues to meet with Treasury to address concerns. “We acknowledge improvements must be made in key areas, particularly those affecting the customer experience,” Simon said in an e- mail.
Ocwen didn’t immediately respond to a request for comment.
Funded with almost $50 billion in Troubled Asset Relief Program money, HAMP pays servicers $1,000 for each loan that is modified and $1,000 a year for three years if the borrower pays on time. The servicers penalized today received about $24 million in payments last month, Treasury reported.
“Any audit is, by nature, backward looking,” Massad said. If a servicer demonstrates it has fixed a problem “in a reasonable time,” the payments will be reinstated, he said.
In its monthly summary of loan modification activity, the report found that nearly 29,000 homeowners permanently lowered their monthly mortgage payments in April under HAMP, bringing the total to 608,615.
More than 7,000 borrowers who had received loan modifications dropped out of the program in April, bringing the total number of cancelations to 90,438.
House Republicans are seeking to end funding for HAMP and other foreclosure-prevention efforts under the administration’s Making Home Affordable umbrella, saying they haven’t done enough to help troubled homeowners.
The program “has been an abysmal failure that has hurt more homeowners than it has helped,” Representative Patrick McHenry, a North Carolina Republican and co-sponsor of a measure to end the program, said today in a press release.
--Editors: Maura Reynolds, Gregory Mott
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