WASHINGTON - The Obama administration threatened on Monday to punish mortgage lenders with fines unless they speed up efforts to give hard-pressed homeowners a permanent break on monthly payments.

With foreclosures still rising and roughly 375,000 borrowers seen as eligible for permanent loan modifications by year end, the Treasury and Housing and Urban Development departments want to make sure that banks come through on the promise of lower payments.

Some 650,000 borrowers have completed trial modifications under the Home Affordable Modification Program that was initiated to try to slow foreclosures, but there have been complaints that banks and loan servicers are slow and lose or misplace paperwork that people send in.

Treasury and HUD said they want borrowers to step up now to make sure trial loan modifications are converted into permanent cuts in monthly payments. The federal agencies are setting performance standards to make sure the companies do or explain why not.

According to a report from the congressional panel that oversees HAMP, only 1,711 permanent mortgage modifications had been offered by September 1, 2009, an indication of how reluctant banks seemed to move beyond trial offers.

We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones, said Phyllis Caldwell, who will head Treasury's Homeownership Preservation Office.

In future, loan servicers will have to submit a schedule setting out how they will reach a decision on each loan that has been documented and communicate with borrowers to either offer a modification agreement or deny one in a letter.

Servicers failing to meet performance obligations ... will be subject to consequences which could include monetary penalties and sanctions, Treasury said in a statement without specifying the size of potential penalties nor the authority under which they might be levied.

Treasury also said it was offering more information on a website www.MakingHomeAffordable.gov to tell would-be applicants for loan modifications how to gather and submit the documentation they need to apply to lenders for relief.

Until now, Treasury has not published figures on how many trial loan modifications have been made permanent, but it said it will start doing so in December.

Loan servicers will have to report on the status of each modification so any situations in which borrowers are facing obstacles can be identified and handled.

The last report on the HAMP program on November 10 showed two servicers, Bank United and Franklin Credit Management Corp, had not extended any modification offers.

Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) were the top three servicers with 136,994, 133,988 and 93,652 active trial modifications, respectively. But Bank of America's percentage of eligible borrowers was the lowest of the big banks -- just 14 percent of eligible borrowers.

(Reporting by Glenn Somerville, Editing by Kenneth Barry)

Mortgage