Wells Fargo (WFC) will formally dispute the Home Affordable Modification Program compliance report issued by the Treasury Department and will challenge the hold on future fees owed to the bank. HAMP launched in March 2009 to provide incentives to mortgage servicers for the modification of loans on the verge of foreclosure. The Treasury said it will withhold these future payments to three major servicers Wells, Bank of America (BAC), and JPMorgan Chase (JPM) because of their poor performance in HAMP. The Treasury reported that it would also have withheld fees from Ocwen Financial (OCN), but it took into account sizable portfolio acquisitions late in 2010. Theresa Schrettenbrunner, an executive at Wells, said the bank will push back. “We are formally disputing this report with Treasury. It in no way reflects the previous conversations about our performance,” Schrettenbrunner told HousingWire Thursday. According to the agreements signed between mortgage servicers and the Treasury, lenders have the right to dispute findings. Servicers are required to make every effort possible to settle the matter with informal talks, but they do have the right to litigate if those talks break down. The Treasury said each of the four above servicers showed a need for substantial improvement. For example, each of the four often miscalculated a borrower’s income, according to the Treasury. In income calculation, the Treasury’s compliance team showed a 27% error rate at Wells, a 22% error rate at BofA, a 31% error rate at Chase, and a 33% error rate at Ocwen. Schrettenbrunner said the Treasury compliance team selected data from August 2010, the same time Wells entered the HAMP principal writedown initiative. An internal audit Wells will submit to the Treasury shows an error rate of 4.5% since the compliance review was completed and remediation took place. “There was some confusion for that calculation only,” Schrettenbrunner said. “We went to the Treasury at the time and told them, ‘We understand we have some problems, what do we need to do?'” Dan Frahm, senior vice president at BofA said future reviews will show progress in several key performance areas. BofA is responsible for one in every four HAMP mod. “We acknowledge improvements must be made in key areas, particularly those affecting the customer experience. We meet regularly with MHA officials to review performance and address any concerns, and will continue that process,” Frahm said. Paul Koches, executive vice president at Ocwen, disagreed with the Treasury’s decision to include performance of portfolios it was absorbing from other companies. “As a consistent leader in HAMP performance metrics, we were naturally surprised when we first heard of this in a preview the Treasury Department provided earlier this week,” Koches said. “Lumping in the after-the-fact transferred loans in the audit has the effect of dragging down our grades on certain performance metrics. We asked Treasury if they could break out the results – ours and prior servicers’ in separate reports – but they declined to do that.” A Chase spokesman also expressed concern over the reports. “The bank respectfully disagrees with the assessment,” the spokesman said. “We have made significant improvements since the modifications that Treasury reviewed and continue to work hard to keep improving our processes and controls.” Write to Jon Prior. Follow him on Twitter @JonAPrior.