Paulson defends bailout, lawmakers seek foreclosure aid

WASHINGTON -- Lawmakers on Tuesday blasted Treasury Secretary Henry Paulson's management of the sweeping $700 billion financial rescue law, accusing him of ignoring provisions designed to help homeowners at risk of foreclosure.

House Financial Service Committee Chairman Barney Frank, D-Mass., pushed Paulson and Federal Reserve Chairman Ben Bernanke at a hearing to support a $24 billion mortgage relief plan developed by Federal Deposit Insurance Corp. Chairman Sheila Bair.

"The fundamental policy issue is our disappointment that funds are not being used out of the $700 billion to supplement mortgage foreclosure reduction," Frank said. "There, I believe, is an overwhelmingly ... powerful set of reasons why some of the ... money must be used for mortgage foreclosure."

Paulson said he had "reservations" about using the $700 billion to directly aid homeowners but would keep searching for ways to address the housing crisis.

Rep. Maxine Waters, D-Calif., countered that Paulson's decision to "absolutely ignore the authority and the direction that this Congress had given you just amazes me."

"You seem to be flying a $700 billion plane by the seat of your pants," Rep. Gary Ackerman, D-N.Y., told Paulson.

FDIC Chairman Bair, at the same hearing, told lawmakers it was "essential" Treasury offer loan guarantees and credit help to slow foreclosures, and warned that 4 million to 5 million mortgages will enter foreclosure over the next two years if nothing is done.

The FDIC says its plan could avert about 1.5 million foreclosures by encouraging lenders to restructure loans by having the government share in the cost of defaults. It is estimated the plan could cost the federal government about $24 billion.

"We are clearly falling behind the curve," Bair said. "Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and broader economic health."

Federal Reserve Chairman Ben Bernanke endorsed the FDIC's approach to ease foreclosures, but with some reservations, noting it could expose the government to substantial costs.