Democrats: It’s about the homes, stupid

Congressional Democrats are coalescing around Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair’s plan to reduce home foreclosures — but her plan has become a thorn in the side of the president who appointed her.

Democrats argue reducing foreclosures was always an “intent” of the $700 billion bailout package, while the Bush administration questions if it is an “appropriate use” of the money.

{mosads}But Democrats expressed confidence that the administration will soon make an effort to reduce foreclosures.

They met with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke for two hours on Monday to discuss the package, known as the Troubled Asset Recovery Program (TARP).

Members also questioned Bair and the two officials at a House Financial Services Committee hearing on Tuesday.

“I think we’re going to see some movement toward TARP money for foreclosure modification,” House Financial Services Committee Chairman Barney Frank (D-Mass.) told reporters after the hearing. “We’re in a process of trying to push them to do something.”

Frank and other Democrats have repeatedly criticized Paulson for dropping the original purpose of the program, which was to buy troubled assets, in favor of investing directly in banks.

The Treasury Department has spent roughly $290 billion of the money so far, most of which has gone to banks and $40 billion of which has been used to support insurance giant AIG.

Frank, during a contentious point in Tuesday’s hearing, brandished a section of the law establishing the bailout package and prodded Paulson on the foreclosure issue. “It’s four pages of specific authorization to buy up mortgages and write them down,” he said. “The intent couldn’t be clearer.”

Paulson defended his use of TARP money for banks, but he also cautiously left the door open to a foreclosure program before President-elect Barack Obama takes office. “I have not said no to doing something here in the TARP aimed at — at foreclosure mitigation,” he said.

Bernanke also called Bair’s proposal “very promising” and seemed open to considering a foreclosure effort.
Bair’s plan reportedly has been the source of internal squabbles in the Bush administration. On Tuesday, White House press secretary Dana Perino left the foreclosure issue open for debate. “We don’t know if that’s the appropriate use for that money,” she said.

Bair and the FDIC broke with the administration last week by announcing the plan as Paulson discussed the shift away from troubled assets. The FDIC plan aims at encouraging mortgage lenders to modify the terms of their loans. It would cost an estimated $24 billion and provide incentives for lenders to reduce the amount of money borrowers must repay on their loans. Bair estimated that the plan would prevent 1.5 million foreclosures by the end of 2009.

“It is essential to utilize this authority to accelerate the pace of loan modifications in order to halt and reverse the rising tide of foreclosures that is imperiling the economy,” Bair testified.

House Speaker Nancy Pelosi (D-Calif.) has been a strong supporter of the Bair plan and foreclosure mitigation efforts. “The solutions to the problem at the root of our economic crisis — aggressively addressing home foreclosures — have been known for some time,” Pelosi said on Monday in a statement following the meeting with Paulson and Bernanke. “Further delay in implementing these solutions is unacceptable.”

Frank also said that, following the Monday meeting, he believed the Treasury Department has opted not to seek access to the remaining $350 billion in the financial rescue package so the Obama administration would have immediate access to financial power to respond to the crisis as it ensues.

“They have talked to Obama and they don’t want him to have nothing,” Frank said. “The essential decision to let Obama have a major say is not undermined” by carving out money for a mortgage reduction plan, he said.

Striking an optimistic chord, Frank said that he could envision a plan from the White House aimed at foreclosure without much legislation. “I do not think we’ll have to direct them,” Frank said of the Bush administration. “Sheila Bair is, after all, a Bush administration employee.”