Bipartisan Fuming at Bailout Over Foreclosures

By Nitya

Nov 14, 2008 2:24pm

ABC’s Z. Byron Wolf reports from Capitol Hill: The man administering the $700 Wall Street bailout passed last month by Congress took a verbal beating from lawmakers in both parties Friday over the evolving nature of that enormous taxpayer check as the second oversight hearing in as many days turned on why money from the Troubled Asset Relief Program is being directly used to keep individual people out of foreclosure.

And the dissent came not just from Capitol Hill. As Neel Kashkari, the Assistant Treasury Secretary overseeing the bailout sat down before Congress, the FDIC commissioner was releasing her own proposal for how to use some of that $700 billion to stem foreclosures on subprime loans even though that proposal has already apparently been rejected by Treasury Secretary Paulson. (Read about the FDIC proposal here.)

Rep. Dennis Kucinich, who chaired the House Subcommittee hearing Friday, held up the TARP Bill and read from the section  that said the Treasury Department should do all it can to "keep homeowners in their homes."

"The treasury just basically cut that out of the bill," Kucinich said, following the argument that that by pivoting from the purchase of troubled assets backed by failing mortgages, the Treasury Department has given up the opportunity to own those mortgages and retool them to keep people in their houses, essentially writing a check to banks instead of buying the mortgages.

"We got millions of people losing their homes," railed Kucinich. "We got people holding on, hoping against hope…all of a sudden the Treasury sent the message to banks, forget about it, we’re going to give you the money you want."

Kashkari respectfully countered Kucinich: "The most important benefit, congressman, for homeowners, is that we didn’t allow the financial system to collapse. Imagine how many homeowners would foreclose…" he said.

Republicans were in on the action too. Darrel Issa, R-Calif, also said more needs to be done with the TARP to target homeowners.

"If we need to have people be able to remain in their homes, it’s very clear that Treasury cannot and will not make the effort to keep people in their homes," said Issa.

Kashkari pointed to new loan modification guidelines announced by the government sponsored lending giants Fannie Mae and Freddie Mac earlier in the week. Those guidelines somewhat mirror the FDIC program, but they would target more stable loans, largely ignoring the subprime market that is the center of the foreclosure crisis.

"We could touch three million or 55," he said.

Rep. Elijah Cummings, R-Md, told Kashkari the TARP needs to be used more immediately and argued that the various voluntary programs for loan originators to modify loans are not working.

"When I go to the supermarket tonight, when I go to the movies, people are going to ask me about you – they’re going to say, Cummings, we listened to you at that hearing. We heard that guy Kashkari. But I’m losing my house today. I heard that citigroup thing, but I have to be 3 months behind. what can he tell me today!"

"Its ring around the rosy," Cummings said. "They hear all this nice talk, but they’re still being put out of their houses."

Kashkari argued today that Bair’s proposal, which has backing from Democrats and Republicans on Capitol Hill, is not an appropriate use for TARP funds, because it would seek to restructure at-risk subprime loans with government backing.

"This legislation was meant to focus on stabilizing the system for everyone. It is not a stimulus," he said at. "It is a stabilization."

Rep. Brian Bilbray, R-Calif, told Kashkari, "If one of my children came in and said dad, I’m deep in debt, I need help, the first thing I’d do would not be to write a check, it’d be to take away the credit cards."

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