Treasury Warned: Modify Loans or No More Tarp Funds
Hopkins, Cheyenne, American Banker
Byline: Cheyenne Hopkins
WASHINGTON - House Financial Services Committee Chairman Barney Frank warned Wednesday that Congress will reject any request for the remaining Troubled Asset Relief Program funds if the Treasury Department does not agree to use some of it to finance a foreclosure prevention program.
He was among several lawmakers from both political parties who assailed a top Treasury official at a hearing on Tarp's implementation, arguing that the agency had blown through $335 billion with scant results.
Though President Bush could veto legislation constraining the Treasury, Rep. Frank said the market consequences would be dire.
"Given the extent to which the psychology of the investor community is a large part of our problems, then ... I don't think that releasing the second $350 billion as a result of the president vetoing the resolution of disapproval would" do more good than harm, he said.
Some lawmakers put it more bluntly.
Rep. Maxine Waters, D-Calif., advised Neel Kashkari, the Treasury assistant secretary for financial stability, against seeking the funds before agreeing to adopt Federal Deposit Insurance Corp. Chairman Sheila Bair's plan to promote loan modifications.
"Please don't come here and ask for another penny because, if you do, I'm going to work 24 hours a day with the same people that I worked with to support you to make sure that they do not support giving you another dime," she told Mr. Kashkari.
Rep. Waters introduced a bill Wednesday that would codify the Bair plan, requiring the Treasury to give a loan guarantee to servicers that do systematic loan modifications. Though the original Tarp law allowed for such a plan, the Treasury has balked at implementing it.
"If he does not correct that, I will proceed with a bill placing into law a plan Sheila Bair wants to put in place," Rep. Waters said.
Mr. Kashkari defended the administration's record on foreclosure prevention, arguing that its investments in banks and other steps have helped prevent economic catastrophe.
"Imagine how many foreclosures you would have if we had allowed the system to collapse," he said.
He added that a voluntary loan modification plan announced by Fannie Mae and Freddie Mac would touch almost every loan.
Pressed by Rep. Al Green, D-Tex., to explain why the Treasury has not supported the Bair plan, Mr. Kashkari argued it would lead to more foreclosures.
"If you put insurance on an asset: If the borrower redefaults, does that create an incentive for the bank to move to foreclosure?" he asked. "We need to take a look at the incentives to make sure we help the borrowers."
Mr. Kashkari cited data that Comptroller of the Currency John Dugan released Monday saying more than half of borrowers that got loan modifications in the second quarter were late on their payments six months later.
FDIC officials have said that the loans were not modified in the same way as Ms. Bair's plan envisions. The Bair plan would also not give a government guarantee until a borrower successfully made payments for six months. …