The Treasury Department announced on Thursday that it will

withhold incentive payments to Bank of America, J.P. Morgan Chase

and Wells Fargo until they substantially improve their

performance in the federal Home Affordable Modification Program,

known as HAMP. Ocwen Loan Servicing was also cited but will

continue receiving payments. Its results were affected because it

started servicing a large pool of mortgages while under review.

The government said banks needed to boost their performance in several

areas,including correctly evaluating whether a homeowner meets the HAMP

income requirements. This is the first time the government has

been this strong with the banks and it is wielding the most

powerful weapon in its HAMP arsenal, which it could have done last year --

the withholding of payments. Servicers are eligible for up to $4,500 over three

years if they put borrowers into sustainable modified mortgages.

The banks in question gave this reply to the Treasury's action; Wells Fargo

saying it would dispute the findings. The San Francisco-based bank said

Treasury is using data from last year and that it has cut its error rate to

4.5%, down from the 27% cited in the report. Chase said it "respectfully

disagrees" with the assessment, while Ocwen said it was surprised

that it was penalized for problems with the modifications made by

servicers whose portfolios it bought out. Bank of America said it

acknowledges it must make improvements that affect homeowners.