Nov. 10 (Bloomberg) -- Morgan Stanley, Citigroup Inc. and JPMorgan Chase & Co. lead the pack of U.S. banks modifying home loans to troubled borrowers under the Obama administration’s main foreclosure prevention plan, the Treasury Department said.

Citigroup, the third-largest U.S. bank by assets, began 88,968 trial modifications, or 40 percent of its eligible mortgages, under the Making Home Affordable Program this year, Treasury data through October shows. JPMorgan, the second- largest U.S. bank, has started 133,988 modifications, or 32 percent of eligibility, the Treasury said in a statement today.

Morgan Stanley’s Saxon Mortgage Services had begun trials for 44 percent of its 80,477 eligible loans. In all, 20 percent of eligible U.S. homeowners have received trial modifications through the government program, according to the data.

“We’re reaching borrowers at a larger scale than any other modification program to date, but there’s still much more work to be done,” Assistant Treasury Secretary Michael Barr said in the statement.

More than 650,994 modifications had been started through the government program as of last month, up from about 487,081 as of September, the Treasury said. The program was announced in February as a way to combat a surge in foreclosures that has pushed property values lower and curtailed economic growth.

Bank of America

Bank of America Corp. was among the worst performers in the program, with 14 percent of loans in modification. The bank, the largest in the U.S. and the biggest mortgage servicer, has 990,628 eligible loans, a greater total than any other company on the Treasury’s list. A spokesman for the Charlotte, North Carolina-based bank, Dan Frahm, said the eligibility data may be misleading.

“As many as one-in-three of those borrowers listed as eligible for the program will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31 percent or is unemployed,” Frahm said.

Eligible loans under HAMP are those that are at least 60 days past due, in foreclosure or bankruptcy, and originated prior to 2009. The underlying property must be owner occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans. A borrower’s mortgage payment must be 31 percent or more of their gross monthly income to qualify.

Bank of America’s modifications started rose to 136,994 in October from 94,918 in September. The bank also accounted for 30.7 percent of the 3.2 million loans eligible for the program and about 22 percent of the 919,965 modification offers extended to borrowers by all the participating banks combined.

Wells Fargo

Wells Fargo, which had been among the worst performers in August, improved its modification rate to 29 percent from 20 percent in September. The San Francisco-based company, the largest U.S. home lender, has begun modifications on 93,652 of its 323,198 eligible loans, according to the Treasury data. It has also modified more than 300,000 additional loans that fall outside of HAMP, according to a company statement today.

HAMP requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at “imminent risk” of default. Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.

President Barack Obama announced the programs in February, and final criteria for administering the modifications on loans owned by Fannie Mae and Freddie Mac were released in April. Specific program guidelines for loans owned by other investors were provided in June, and the Treasury later gave new details for loans backed by the Federal Housing Administration.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: November 10, 2009 12:04 EST