The Treasury Department will pay mortgage servicers more for modifying loans in an earlier stage of delinquency and less the longer the process takes, according to guidance released Wednesday. The Treasury said these same guidelines, effective Oct. 1, will be adopted by Fannie Mae and Freddie Mac when the Federal Housing Finance Agency aligns the new mortgage servicing fee structures that same month. Through HAMP, a servicer receives $1,000 when a homeowner is placed into a verified income trial modification that would last three months before turning permanent. Since the program launched in March 2009, servicers started 1.6 million trials and started roughly 731,000 permanent modifications through May. Effective Oct. 1, mortgage servicers will receive $1,600 if the trial starts before a loan becomes more than 120 days delinquent. The servicer will get $1,200 for loans between 121 days and 210 days delinquent. But for mortgages put into a trial stage after 210-days delinquent, the servicer will actually see less money. Instead of the $1,000 the bank received before, the Treasury will pay $400. The Treasury banned servicers from requiring a borrower to make past-due payments before entering a trial in order to collect the higher fee. Treasury officials and servicers found seriously delinquent borrowers were falling out of the program because the months of interest accruing over an extended period of time needed to be capitalized into eligibility tests. As a result many borrowers were found ineligible for the program. Also, the further into delinquency a borrower was before the trial stage, the greater the possibility of redefault. According to the Treasury, mortgages modified through HAMP beyond eight months delinquent redefaulted at a rate of 28%. That's compared to a 16% redefault rate for loans modified before five months delinquency. HAMP will not reach the 3 million to 4 million borrowers the Treasury initially estimated. Officials say the program set the standard for private initiatives, and the Treasury has made a variety of changes such as documentation requirements and a single-point of contact to boost numbers and performance. "We want to encourage servicers to reach borrowers early and modify loans before they are seriously delinquent," a Treasury official said. "If we can reduce the delinquency time we should incrementally increase the amount of modifications through the program and reduce the likelihood of redefault. We want to get a trial modification started within four months of it going delinquent." Write to Jon Prior. Follow him on Twitter @JonAPrior.