For many of Wachovia's struggling mortgage borrowers, getting a loan modification with Uncle Sam's help is still out of reach.

Richard Bell, a Pick-A-Pay mortgage borrower at Wells Fargo & Co. (WFC) unit Wachovia, says he needs a government-assisted mortgage modification before his payments balloon early next year.

"This loan is blowing up on me and I'm trying to keep my house," Bell told a Wachovia representative this week, in conversations reviewed by Dow Jones Newswires.

But Wachovia, now owned by San Francisco-based Wells Fargo, has been telling the San Diego publishing executive every week since June that he will have to wait.

"We're not currently taking applications for the government's program" - the Home Affordable Modification Program, or HAMP - the representative told Bell. She said Wachovia's computer systems aren't yet set up to handle applications under the program for Pick-A-Pay, or option adjustable-rate, mortgage borrowers.

Like other at-risk borrowers at Wachovia, Bell is trapped in limbo between the U.S. government's hasty efforts to help troubled homeowners, and a loan servicer working to manage billions of dollars in risky loans.

The U.S. Treasury launched HAMP in February as part of a grand government experiment aimed at limiting the nation's soaring number of foreclosed homes - and the drag on values of near-by homes that foreclosures create.

There are likely to be 2.4 million foreclosures in the U.S. this year, according to the Center for Responsible Lending. There also were and estimated 2.4 million foreclosures last year.

Under its HAMP initiative, the Treasury pays loan servicers and borrowers who agree to loan modifications. The government has pressed servicers - including some affiliated with banks that have received large sums of government support - to use the program.

Some have started trial modifications for thousands of borrowers under HAMP. Morgan Stanley's (MS) mortgage-loan servicing firm, Saxon Mortgage Services Inc., has modified loans for 29,000 delinquent borrowers through August, or 39% of its estimated pool of eligible home owners, according to a Treasury report. Wells Fargo, which accepted $25 billion in public support from the U.S. Treasury, has modified 33,000 loans, or 11% of its estimated pool of eligible borrowers.

Wachovia, which Wells Fargo purchased last year, has during the same period modified about 1,800 loans, equal to about 2% of its eligible delinquent borrowers.

Michael Heid, co-president of Wells Fargo Home Mortgage, which includes Wachovia's loan-servicing unit, said he couldn't speak to a specific customer's situation. He said Wachovia was forced to "re-code" its computer systems because of "some of the tweaks to the program" the government made earlier this year. He said Wachovia will begin accepting applications from HAMP borrowers in the next couple of weeks.

Wells Fargo, which has nearly 6,700 branches in 39 states coast-to-coast, also points out that it's modified loans or lowered monthly payments for "nearly one million" borrowers during the first half of 2009 by using other programs in addition to HAMP. Wells Fargo also said an upcoming report from the Treasury will show Wells Fargo's own servicer has nearly doubled its rate of trial modifications under HAMP.

A spokesperson for the Treasury said: "Servicer performance has been uneven, so we are focused on continued transparency and servicer accountability to maximize the effectiveness of HAMP. While we believe that servicers can improve the rate of modifications made...we are on track to meet program goals."

The spokesperson also said the Treasury has put in place a "Second Look" initiative for HAMP "to review HAMP applications denied to ensure proper guidelines were followed and eligible borrowers are not turned away."

Last year, Wells Fargo became the nation's fourth-largest bank by assets overnight when it purchased Wachovia. The one-time Charlotte-based titan of consumer banking had crumbled under soaring losses as its mortgage borrowers fell further and further behind in making payments.

Wells Fargo's inability thus far to offer government assistance to thousands of Wachovia borrowers illustrates a hurdle in the bank's efforts to swallow Wachovia and its billions in risky home loans.

Central to Wachovia's demise, and now Wells Fargo's future, are what Wachovia called Pick-A-Pay mortgage loans. Wachovia at one point held more than $120 billion of these risky negative amortization loans, which offer borrowers the option of paying less than the loan's interest every month, which increases the loan's balance.

A bulk of Pick-A-Pay loans are tied to properties in California and Florida and other regions devastated by sliding home values. Pick-A-Pay borrowers like Bell have increased their mortgage balances each month even as the value of their homes fell.

Both Heid and an official at another large bank said that it's difficult to modify Pick-A-Pay loans under the government's guidelines. The loan pool's rising balances, combined with borrowers accustomed to making minimal payments, make it challenging for borrowers to transition into higher conventional payments of principal and interest.

Instead of offering HAMP assistance to Pick-A-Pay borrowers, Heid said Wells Fargo has instead favored an in-house modification program tailored to Pick-A-Pays.

A Wachovia representative told Bell that Wachovia began rolling out the in-house program in September. Heid says Wells Fargo's been using the program since January. Bell said he would call back soon to learn how Wells Fargo's program for Pick-A-Pay borrowers differs from HAMP, since the Wachovia employee didn't know.

Unlike HAMP, which seeks to lower a loan's interest rate to bring down borrowers' principal-and-interest payments, Heid said Wells Fargo's program for Pick-A-Pay borrowers generally uses interest-only loans. Under that program, Heid said, a borrower is typically approved to make interest-only payments for "as long as five to 10 years" before beginning to pay down the loan's balance.

He said Wells Fargo has reduced loan balances for some borrowers, but wouldn't say how much mortgage debt the bank has forgiven in total.

Handling homeowners like Bell is only one task Wells Fargo must tackle as it swallows Wachovia's customers and operations. Wells Fargo said recently that the merger is on track. Heid, the head of mortgage servicing, said Bell's experience is not due to complications of executing the acquisition.

A staffer at a Wachovia call center in Tennessee told Bell that she and her colleagues were trained to implement the government's program, but are awaiting the necessary tools.

"We're waiting for it," she said, "just like you guys."

-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156; marshall.eckblad@dowjones.com