The Obama administration said on Wednesday it will keep the pressure on two big U.S. banks to help more troubled borrowers from losing their homes by withholding payments to the banks under a foreclosure-prevention program for the third straight quarter.

The Treasury said Bank of America and JPMorgan Chase & Co need to improve their loan modification efforts to merit the financial incentives the administration's housing rescue program provides to mortgage servicers. JPMorgan is at risk of permanently having support reduced if it does not make substantial improvements in time for the first quarter of 2012, the Treasury said.

We are disappointed with our rating, and will continue to work hard to improve our processes and controls, a JPMorgan Chase spokesman said.

The Treasury's Home Affordable Modification Program, known as HAMP, provides incentives for mortgage servicers to rewrite loan terms to reduce monthly payments for struggling borrowers.

The mortgage servicing industry lacked accountability and transparency when this crisis started, said Treasury Assistant Secretary for Financial Stability Tim Massad. Publishing these servicer assessments is key to our efforts to hold servicers publicly accountable for their performance and keep necessary pressure on them to improve.

The Treasury's move against the servicers came as the department issued its latest scorecard on the number of homeowners who have won permanent loan modifications under the program.

The federal initiative to avert foreclosures helped 26,102 more homeowners win a permanent loan modification in October. The Treasury and the Department of Housing and Urban Development said 883,076 homeowners had been granted permanent loan modifications since the program was launched in 2009.

When HAMP was launched, the administration said it expected 3 million to 4 million homeowners would benefit by having their loans modified to permit lower payments or to extend the period over which payments could be made. So far, the program has started 1.74 million trial and permanent modifications.

The Treasury began issuing updates on the 10 largest mortgage servicers in June, assessing how the companies reached out to troubled borrowers and carried out loan modifications.

The government first criticized four lenders: JPMorgan Chase, Bank of America Corp., Wells Fargo & Co. and Ocwen Loan Servicing, and began withholding financial incentives up to $1,000 per modification.

Wells Fargo and Ocwen made improvements in implementing mortgage modifications and were removed from Treasury's watch list.

(Reporting by Margaret Chadbourn, Editing by Dan Grebler)

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