WASHINGTON, Dec 9 (Reuters) - The Obama administration on Monday urged big U.S. banks to improve how they implement a government anti-foreclosure program, saying more can be done with the federal funds that go toward helping struggling homeowners.

The U.S. Treasury said CitiMortgage Inc needs to make "substantial improvement" in its loan modification efforts that merit the financial incentives the administration's main housing rescue program provides to mortgage servicers.

CitiMortgage mainly needs to do a better job of reaching out to homeowners who are eligible for assistance, the Treasury said.

The Treasury each quarter reviews how the servicers identify and contact homeowners, the way that they evaluate and assist people, and their management and governance procedures.

Under the Home Affordable Modification Program, known as HAMP, the Treasury gives financial incentives to servicers to change the terms of certain borrowers' mortgages to lower their monthly payments.

Three other servicers, Ocwen Loan Servicing LLC, Selecting Portfolio Servicing Inc and Wells Fargo & Co , were also cited by the Treasury as needing to make "moderate improvement."

Bank of America Corp and JPMorgan Chase & Co need to make "minor improvement," the Treasury said.

"There is still room for improvement for servicers and the Treasury is committed to applying pressure on the mortgage servicing industry to improve servicer behavior," said Treasury Deputy Assistant Secretary Tim Bowler in a statement.

By the end of October, 1.5 million homeowners had obtained permanent loan modifications through HAMP, far fewer than the 3 million to 4 million forecast by President Barack Obama's administration when the program began in 2009.

The number of homeowners who are "underwater," meaning they owe more on their mortgages than their homes are worth, is down more than 40 percent from its peak.

However, the number remains historically elevated, the Treasury said, and more work needs to be done to ensure the continued stability of the housing market.