Lawmakers at the U.S. House Subcommittee hearing led by Representative Dennis Kucinich have pressed Assistant Treasury Secretary Neel Kashkari on the shift in the way the department used the $700 billion economic rescue fund under the Trouble Asset Relief Program (TARP).
Kashkari, who administers the department’s $700 bailout program, spent the duration of the subcommittee hearing explaining why the money from the economic rescue fund is directed towards banks and not used in buying mortgages to help financially-distressed homeowners.
Kucinich read a section from the TARP bill that stated that the Treasury should help homeowners retain their homes. He pointed out that when the agency decided not to acquire troubled properties, it has passed up the chance to own those mortgage loans and modify them to help people avoid foreclosure.
Kashkari countered Kucinich by pointing out that what is most important and beneficial to the people is that the agency prevented the financial system from collapsing. He adds that the collapse of the financial system would surely result to more foreclosures.
Meanwhile, Representative Darrel Issa criticized the Treasury Department by saying that it cannot be relied upon to protect homeowners from foreclosure.
Representative Elijah Cummings has told Kashkari to use the TARP immediately, adding that various voluntary programs designed for loan servicers to modify loans have failed to produce results. Kashkari cited the loan modifications guidelines by Freddie Mac and Fannie Mae that are somewhat similar to the Federal Deposit Insurance Corp. (FDIC) program.
However, these programs by both government-sponsored lending companies would target stable loans and ignore the subprime market which is the key factor in the economic crisis.
In the end, Kashkari argued that FDIC Commissioner Sheila Bair’s foreclosure prevention plan is not the right use for federal funds because the proposal seeks to restructure risky subprime loans with support from the U.S. government.
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