Three penalized mortgage servicers may still get Home Affordable Modification Program fees, withheld from the Treasury Department, if the companies make necessary corrections in a timely manner. The Treasury released its first quarter HAMP compliance review of the top-10 mortgage servicers Thursday. The government will withhold HAMP payments due to Bank of America (BAC), Wells Fargo (WFC) and JPMorgan Chase (JPM) because of poor performance. Ocwen Financial (OCN) scored similar poor results, but the Treasury said it will not withhold fees because the company acquired a large servicing portfolio from HomEq during the review period. The Treasury launched HAMP in March 2009 and set aside $29.9 billion for the program. Servicers provided nearly 700,000 permanent modifications through April 2011, according to the monthly report. The Treasury will withhold more than $7.1 million in May payments from BofA, $8 million from Chase and $8.7 million from Wells. In a conference call Thursday, Treasury Assistant Secretary for financial stability Tim Massad said the reviews are “the next step” the government is taking to ensure the program provides as much help as possible. “The goal of these assessments is to provide more transparency. This is an expansion of our compliance and reporting efforts,” Massad said. “We will now start withholding payments next month. That’s just the nature of the remedy under the contract. If they fix the problem within a reasonable time they will get the money.” Pushback But servicers already pushed back. Wells filed a formal dispute over the withdrawn fees. They and the other servicers pointed to incomplete data sets taken at a time when the companies were still adjusting to program guidelines. Paul Koches, executive vice president of Ocwen, said his company absorbed responsibilities on over 300,000 mortgages with its acquisition of other portfolios. “In doing so, we never imagined that we could somehow be saddled with the actions or inactions of prior servicers in our HAMP ratings,” Koches said. “Treasury has agreed to meet with us to discuss the matter further.” Why now? The reviews set benchmarks for HAMP performance Massad said could be adopted into other programs. The Treasury will hold servicers accountable if compliance teams disagree with more than 4% of the servicers actions when determining HAMP eligibility. Fees could be withheld if the review finds servicers miscalculate what incentives they are entitled to by more than 5%. If the compliance team finds an error on more than 5% of a servicer’s income calculation for borrowers, fees would be withheld as well. The reviews also cover internal controls for homeowner evaluation, program management, identifying and contacting borrowers. But questions arose of the benchmark timing. Borrowers and servicers both complained of lost paperwork, insufficient data and lagging response time since the program launched in March 2009. Consumer groups, lawmakers, the Special Inspector General for the Troubled Asset Relief Program and the Congressional Oversight Panel long called for Treasury to crack down on servicers that were underperforming. Massad said the Treasury wanted to give the servicers time to adapt, and early on there weren’t enough permanent modifications to justify any withhold on fees. The Treasury made more than 40 guideline changes, according to one servicing executive. In November 2009, servicers reported roughly 30,000 permanent modifications. As of April 2011, the total climbed to nearly 700,000. Servicers conducted 29,000 permanent mods in April alone. It is still off the pace of originally reaching 3 million to 4 million borrowers. “It was very clear that what we needed to focus on was getting servicers to improve their systems, to get the people they needed, to be able to get a lot more permanent modifications. We’re using the tools that we have,” Massad said. “We don’t have the power to impose fines the way a regulator would. We have the power to tell them to take remedial action. We have the power to withhold incentives.” Write to Jon Prior. Follow him on Twitter @JonAPrior.