Henry Paulson, the Treasury Secretary and Barney Frank, the House Financial Services Committee Chairman used to be best friends; but now — not so much anymore.
The conflict between the two started when Frank criticized Paulson for using funds from the $700 billion Wall Street bailout in support of Citigroup before allocating the funds to ease the foreclosure problems of distressed homeowners.
Paulson has set aside some money from the TARP, or the Troubled Asset Relief Program to save the Citigroup's distressed assets on its balance sheet. However, this decision of Paulson has shown a conflict between the activity of the administration and its failure to take appropriate action to lessen mortgage foreclosures.
Frank keeps on reiterating that TARP funds are to be used to fund immediate mortgage foreclosure relief. Paulson has already spent the first $350 billion on direct cash infusions to all banks. The question now is what will happen on the second &350 billion.
Everyone is waiting for the Department of Treasury to adopt a plan forwarded by the chairwoman of the Federal Deposit Insurance Corp., Sheila Blair, to make use of the remaining funds to guarantee distressed home loans. This plan is very important since it is estimated to prevent about 1.5 million foreclosures in the coming year.
By last week, Frank has offered Paulson other suggestions on how to use the funds to mitigate foreclosures. These include the following:
Release of new loans that would offset some depreciation in prices of homes
Reduction of upfront costs and other fees under a new federal home-loan program
Large-scale purchases of home loans to modify such loans and keep the borrowers in their properties.
The issue about the friendship of the two officials is not the main problem here but making right decisions when it comes to fund allocation. Both must agree on what needs immediate response, and that is mitigating mortgage foreclosures and saving distressed homeowners.
Cassiano Travareli has been educated in the finer points of the foreclosures market over 5 years.