Treasury Should Mandate Mortgage Modifications, Says TARP Watchdog

The man in charge of monitoring the Troubled Assets Relief Program (TARP) told members of the Senate Finance Committee Tuesday that the Obama administration should consider forcing lenders to reduce payments for homeowners behind on their mortgages.

Neil Barofsky, the Special Inspector General of TARP, a $700 billion financial rescue program designed to help cushion the blow of the recent housing collapse, said that foreclosures have increased since the current administration announced measures last year to straighten out the housing market.

According to Barofsky, the Treasury Department's Home Affordable Modification Program (HAMP), a voluntary $75 billion foreclosure-prevention policy which gives payments to lenders who agree to reduce the principal on homeowners' loans, “has made very little progress in stemming this onslaught."

In a report put out Tuesday morning, Barofsky wrote that the Treasury Department could do more for borrowers by making the program mandatory.

"Giving servicers the discretion to implement principal reduction introduces a questionable inconsistency into the HAMP program and stands in stark contrast to the mandatory nature of the other significant mortgage modification triggers."

Congress questions Lehman Brothers CEO

Chairman and CEO of Lehman Brothers Holdings Richard Fuld Jr. said that his company's fall could have happened to anyone because "nobody expected such decline" in the housing market. Rep. Jim Cooper (D-Tenn.) said that while Fuld claimed this could have happened to any company, "it didn't happen" to other companies.

Fuld said that Lehman Brothers's capital was in good shape on September 10, five days before the company filed for bankruptcy. Rep. John Sarbanes (D-Md.) called Fuld's account of the fall of the company "implausible."

Fuld said closing the mortgage business of Lehman Brothers down would have been a good idea in retrospect, but others would have considered that "irrational" at the time. Rep. Peter Welch (D-Vt.) said that companies had taken the business of mortgage lending, and "put it on steroids."

Rep. Chris Van Hollen (D-Md.) said that the previous compensation packages Fuld had accumulated (Fuld said he received about $350 million in compensation while at Lehman Brothers) should be given to the shareholders of the company. Fuld said he suffered financially from his company's bankruptcy considering he was "the single largest shareholder."

Fuld said that while he gave the U.S. Securities and Exchange Commission (SEC) high marks, "the overall regulatory system has to be redone." Rep. Diane Watson (D-Calif.) said that the SEC was either "unable or unwilling" to regulate companies such as Lehman Brothers.

Rep. Chabot on Bankruptcy

The $700 billion bailout would cost taxpayers about $6,000 to $10,000 per household, said Rep. Steve Chabot (R - Ohio) in a conference call which included Wade Henderson of the Leadership Conference on Civil Rights and Mike Calhoun of the Center for Responsible Lending.

"Congress would lift the federal debt...to over $11.3 trillion," said Chabot.

Chabot had serious concerns about the bailout bill. "This would set a dangerous precedent in getting the federal government this involved in what in essence is supposed to be a market-based system...[I] am concerned this will not be the last bailout." Chabot felt that taxpayers should not have to deal with the problems that Wall Street created and he felt that nothing was being done to help the Americans that faced bankruptcy.

Henderson and Calhoun discussed a bankruptcy bill that would make it easier for families to pay off their mortgage. The bill would have prevented "up to 600,000 forclosures," said Calhoun, "but because of intense pressure by industry lobbyists, the same industry that created the crisis and is receiving its own life preserver from the government, this provision was blocked."

Chabot was in favor of the bill. "We're not doing anything to really help these people, who, if we had helped them, we might not be in the problems we're in right now." It is not likely that the bankruptcy bill will be included in the bailout package which the House will vote on this week, but Chabot is hopeful that the bankruptcy laws will be changed in the future.

Paulson asks Senate for keys to economy

In choosing which companies to save in this recent period, "We have acted on a case-by-case basis," but "more is needed," said Treasury Secretary Henry Paulson in a hearing today before the Senate Banking, Housing, and Urban Affairs Committee. Paulson sent a proposal to Congress that would give the Treasury Department $700 billion to buy out and run various companies the government plans to take over due to potential bankruptcy.

Paulson said that the government must "fundamentally and comprehensively address the root cause of this turmoil." That turmoil, he says, is the housing market. He said the housing market is "choking off the flow of credit which is so vitally important to our economy." Chairman of the Federal Reserve System Ben Bernanke echoed the sentiment that our economy will only improve when the housing market improves.

Many senators had similar problems with Paulson's proposal. Sen. Chris Dodd (D-Conn.) said of Paulson's proposal that, "It would do nothing to help even a single family save a home." Senator Chuck Schumer (D-N.Y.) said that any bill would have to account and include the taxpayers, housing market, oversight, and regulation. He used the acronym "THOR" to refer to those four issues. Sen. Chuck Hagel (R-Neb.) said that the proposal must include more accountability and transparency. He also said that Congress must drastically rethink its economic policies for "a 21st century global marketplace." Sen. Michael Enzi (R-Wyo.) said that because the proposed bill would cost each U.S. citizen approximately $2,300, they had to be accounted for.

Bernanke asks congress to do more for the economy

Ben Bernanke, Chairman of the Federal Reserve, testified before the House Financial
Services Committee on monetary policy and the state of the US economy. He stated that
despite rising oil and commodity prices and a mortgage crisis facing the United States,
our economy continues to grow, though at a subdued pace. These issues all require action from the US congress.

Of particular concern to Bernanke is the effect our economy is having on the job market and
housing sector. He stated that while all sectors have seen a decline in job availability, the construction sector has been particularly hard hit. This problem is made worse by
declining housing starts and a slowdown in the purchase of new homes. Currently, the
unemployment rate in the United States has risen to 5 percent.

Bernanke also addressed concerns over the rising cost of oil. He attributes this rise to an
increased demand from developing nations, as many of these economies have seen large
amounts of growth. This has caused both the global demand for oil and its price to rise. In
addition, Bernanke stated that the long term predictions of available oil supplies are
low, which could mean that higher oil prices will continue to plague Americans at the
pump.

The Chairman concluded by stating that he would like to see government do more to deal with our nation's housing crisis and rising rate of foreclosures. While in this last week the federal reserve authorized more lending to assist both Fannie Mae and Freddie Mac, who control trillions of dollars in the US mortgage market, congress has not done nearly enough to control the effects this crisis has on Americans.