12/07/2011 03:54 pm ET Updated Dec 07, 2011

Foreclosure: Administration Chides Banks For Poor Performance In Anti-Foreclosure Program

The Obama administration chided two of the nation's biggest banks Wednesday for failing to improve their performance in the administration's signature anti-foreclosure program.

The U.S. Treasury Department announced Wednesday that Bank of America and JPMorgan Chase would not receive incentive payments for modifying mortgages under the Home Affordable Modification Program, the administration's signature effort to reduce foreclosures. The two lenders lost points for poor outreach and miscalculating homeowners' incomes.

Under HAMP, banks can earn $1,000 payments per modified loan if their mortgage servicing divisions reduce monthly payments for struggling borrowers, but the program has been dogged by the poor performance of participating banks -- especially JPMorgan Chase, which the administration said needs "substantial improvement."

"We are disappointed with our rating, and will continue to work hard to improve our processes and controls," Chase spokesman Tom Kelly said in a statement.

The administration first started withholding payments from Bank of America, Chase, and Wells Fargo in June. Wells Fargo was let out of the doghouse in September and given the withheld cash, but Bank of America and Chase are still out their incentive payments, a total of $53 million and $57 million, respectively. It's not a huge penalty considering the banks' combined earnings of more than $10 billion in the last quarter, and the fact that the payments will be delivered if the lenders do better (though Treasury said Chase is at risk of never getting its payments).

Big banks may eventually face a more severe penalty for mistreating homeowners; the Obama administration has partnered with a coalition of state attorneys general in seeking a $25 billion settlement that would reform the mortgage servicing industry. But the talks have dragged and several attorneys general have objected to the terms. The lenders targeted in those talks are Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial, the nations five largest mortgage servicers. As with HAMP, the settlement would exclude loans owned by government mortgage companies Fannie Mae and Freddie Mac.

Bank of America noted in a statement Wednesday that it received two or three stars on each of the three-star metrics Treasury uses for HAMP, and that the department no longer considered it in need of "substantial improvement." Yet the lender hasn't improved enough to receive its incentive payments.

"While we are disappointed with this decision, these financial incentives do not drive our efforts to help our customers in need of assistance," spokesman Richard Simon said. "We will continue to build on the progress we've made to improve our operations and provide customers the transparent, responsive process they deserve."

"The mortgage servicing industry lacked accountability and transparency when this crisis started,” Treasury official Tim Massad said in a statement. "Publishing these servicer assessments is key to our efforts to hold servicers publicly accountable for their performance and keep necessary pressure on them to improve."

President Obama said in 2009 that HAMP would modify mortgages for 3 to 4 million homeowners, but so far just 735,464 homeowners have had their loans permanently modified, while more than 900,000 have had their modifications canceled.