House Speaker Nancy Pelosi has asked Financial Services Committee Chairman Barney Frank to introduce legislation that would compel the Treasury Department to spend part of the $350-billion remaining bailout fund to rescue troubled mortgage loans in order to prevent further foreclosures.
In the original $700-billion bailout bill approved by Congress in October 2008, it was specified that part of the fund will be used to acquire mortgage-backed securities and homeowner mortgages. But Treasury Secretary Henry Paulson decided to rescue failing financial institutions instead, such as AIG and Bear Stearns. Paulson argued that saving the failed financial institutions was necessary to stabilize the country’s financial system.
Pelosi specifically asked Frank to write a legislation that would block the Treasury’s access to the $350-billion funding if it does not use part of the funds to rescue homeowners in danger of foreclosure. A lot of economists have argued that helping distressed homeowners and reducing foreclosure properties will revitalize the housing market and ultimately contribute to economic recovery.
Committee spokesman Steve Adamske said that Frank is deliberating on several measures to reduce the number of foreclosed properties, including the following:
Modification of mortgage loans to make them affordable to borrowers
Expansion of the Hope for Homeowners program to refinance mortgage loans in danger of foreclosure
Allocation of funds for the purchase of mortgage-backed securities and homeowner mortgages
Provision of assistance to borrowers who can afford new loans from the Federal Housing Administration (FHA).
It is expected by analysts that the loan modification model used by Federal Deposit Insurance Corp. (FDIC) Chairwoman Sheila Bair in rescuing troubled borrowers of the Indymac Federal Bank in July 2008 is the top modification model being considered for loan workouts in 2009. Bair restructured subprime adjustable rate mortgage (ARM) loans into long-term sustainable loans, making sure Indymac borrowers are able to pay their monthly amortizations and avoid foreclosures.
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