WASHINGTON ( TheStreet) -- Bank of America ( BAC) has the potential to earn $10 billion worth of incentives for modifying mortgages through a federal program, but appears to have capitalized upon as little as 1% of that amount through January. The situation at Bank of America, the country's largest mortgage lender, is emblematic of the banking industry's sluggishness in accepting the inevitable about the U.S. housing mess. Borrowers need loans that are more affordable, or else they won't be able to pay. There's also a glut of housing inventory that needs to be cleared. The government has been trying to push the process forward, simultaneously offering carrots while trying to smack the banks with sticks, but the process has been slow-going at best. The Treasury Department has set aside $75 billion in incentive payments for its Home Affordable Modification Program, or HAMP, to be distributed to banks and borrowers. Last week, it unveiled another program to encourage "short sales" of homes that are occupied by borrowers at risk of foreclosure. The government will pay servicers up to $2,000 to get it over with and sell the home at a loss and provide "relocation assistance" for borrowers as well. But not every servicer has enrolled in HAMP, and even those that have are leaving billions in potential incentive payments on the table. The "incentive cap" figure -- or the maximum potential rewards for participating servicers -- stood at $36.9 billion at the end of January, according to a monthly report . TheStreet.com asked a Treasury spokeswoman how much of those funds have actually been dispersed, but she didn't respond in time for publication. Of the 106 servicers participating in HAMP, the three banks that stand to reap the biggest incentives -- Bank of America, Wells Fargo ( WFC) and JPMorgan Chase ( JPM) -- account for more than half of potential HAMP rewards. To receive those funds, the banks would have to successfully move borrowers from a trial plan into a permanent mortgage workout. However, only 2.2% of their 1.9 million eligible borrowers have advanced to that level. Another 2.1% -- 40,000 or so -- have received permanent workout offers, but haven't accepted them yet. >>>Click here to see the breakdown of banks that could earn the most in HAMP incentive programs.