WASHINGTON — The Treasury Department warned Wednesday that it will permanently reduce incentive payments for JPMorgan Chase & Co. unless it improves its mortgage modification efforts under the Home Affordable Modification Program.

The bank was found to be in need of substantial improvement, according to the administration's November housing scorecard. The report, released jointly by Treasury and the Department of Housing and Urban Development, includes detailed assessments of the 10 largest servicers participating in Hamp.

This marks the third consecutive quarter that the agency has withheld incentive payments for the company.

"While JPMorgan Chase demonstrated some progress in areas reported for the third quarter, the servicer has a number of outstanding items from previous quarters that have not yet been addressed and play a critical part in their broader execution of the program," Treasury said in a press release. The agency "will permanently reduce incentives owed to JPMorgan Chase unless the outstanding items are addressed before the next assessment."

Treasury said it would also continue to withhold incentive payments for Bank of America, which the report found was in need of moderate improvement under the program.

"We are disappointed with our rating, and will continue to work hard to improve our processes and controls," a spokesman for JPMorgan said in an email Wednesday.

A BofA spokesman said the company had dramatically improved its performance in the program and received two or three stars, the best mark, in ever rating.

"In spite of progress made, the committee has chosen to continue to withhold incentive payments," the spokesman said in an e-mail. "While we are disappointed with this decision, these financial incentives do not drive our efforts to help our customers in need of assistance. We will continue to build on the progress we've made to improve our operations and provide customers the transparent, responsive process they deserve."

Wells Fargo, whose payments were withheld following the second quarter assessment, will begin receiving incentive payments again, although the report found that it is still in need of moderate improvement.

The assessments summarize servicer performance in identifying and contacting homeowners, homeowner evaluation and assistance, and program reporting, management and governance.

Under the program, servicers receive incentive payments for mortgage modifications -- $1,000 for each completed permanent modification for a delinquent borrower and $500 for each mod given to a current borrower. The agency did not say how much those payments could ultimately be reduced.

Treasury warned earlier this year that it would begin withholding those payments unless servicers improved their performance in the program. At the time, it found that JPMorgan, B of A, and Wells were all in need of substantial improvements, and had made significant mistakes determining eligibility for the program, communicating effectively with potentially eligible borrowers and calculating the incentives they are owed, among other problems.

According to the most recent report, JPMorgan met just two of seven benchmarks required of servicers under the program. It continued to make errors in income calculation and incentive payments, and failed to establish adequate internal controls for identifying and contacting borrowers, evaluating homeowner eligibility and assisting borrowers, and for program management, according to the report.

The company has the worst third quarter servicer performance rate for converting trial modifications initiated after June 2010, and took the longest number of average days to resolve escalated cases, the report found.

Treasury found that five other servicers to be in need of moderate improvement: American Home Mortgage Servicing Inc., CitiMortgage Inc., GMAC Mortgage LLC, Litton Loan Servicing LP and Ocwen Loan Servicing LLC. Two servicers — OneWest Bank and Select Portfolio Servicing — were in need of minor improvement, according to the report.

Although Treasury is only withholding payments from JPMorgan and B of A, it warned that companies in need of moderate improvement could have their payments withheld in the future unless they make improvements.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.