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In a testimony before the U.S. House Financial Services Committee, Henry Paulson, secretary of the Treasury Department, rejected Democrat lawmakers’ proposal to use a portion of the Troubled Asset Relief Program’s (TARP) $700 billion fund to help reduce foreclosures.
Paulson argued that the federal government’s bailout program is designed to stabilize the financial industry and improve the flow of consumer credit. He adds that the program is not a solution for all economic problems of the country.
Representative Barney Frank pointed out to Paulson that the bill is also intended to reduce foreclosures.
Paulson also argued against a foreclosure relief plan, which was proposed by Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. (FDIC).
Bair is seeking support for a loan modification plan using a portion of the bailout fund that she claimed could go a long way in protecting about 1.5 million homeowners from foreclosure.
She said that it is important to use the TARP to hasten the pace of the mortgage relief program in order to stop and reverse the increasing trend of foreclosure that is destroying the country’s economy.
Paulson has committed $250 billion from the $700 billion bailout for purchasing shares in banks. He pointed out that a contribution to a federal initiative for consumer finance and capital injections are some of the best uses for the bailout money.
However, Paulson clarifies that he has not closed his door for the idea of using the bailout money for foreclosure mitigation. He said that his department will continue to review and find programs that will protect the taxpayer. He had scrapped his initial plan for the relief program which was to buy distressed assets from financial companies to unblock lending.
The Treasury Department prefers to allocate a portion of the bailout funds to improve securitization in the secondary market and strengthen consumer credit.
HUD Fair Housing Equal Opportunity