|
Washington, DC - House Financial Services Committee Chairman Barney Frank (D-MA), today released the following statement regarding Citigroup:
“The decision by the Secretary of the Treasury to use TARP funds for Citigroup underlines the contrast between the administration’s activity in this area and its failure to take similarly decisive action to reduce mortgage foreclosures. As I told Secretary Paulson when he informed me this morning of his decision to provide funds for Citigroup, I believe it is essential that TARP funds be used immediately to fund mortgage foreclosure relief. While most of the first $350 billion has now been committed, tens of billions remain available for immediate use to reduce foreclosures even before drawing on the second $350 billion. I wrote to the Secretary last week specifying several very promising approaches to diminish foreclosures that could be significantly advanced by the use of these funds. There is no good reason for further delay.”
The full text of the letter as follows.
Please note: This letter was sent and publicly released on November 20, 2008. http://www.house.gov/apps/list/press/financialsvcs_dem/press112008.shtml
November 20, 2008
The Honorable Henry M. Paulson. Jr.
Secretary
Department of the Treasury
Washington, DC 20220
Dear Mr. Secretary:
I write to follow up on the November 18 House Financial Services Committee hearing on the Troubled Assets Relief Program, and to urge you in the strongest possible terms to use TARP funds immediately to support significant steps that can help stem the tidal wave of foreclosures threatening the stability of our financial system and our economy. As a first step, I applaud the regulatory changes in FHA’s Hope for Homeowners program that you and the other members of the Hope for Homeowners Board approved November 19. These changes, authorized by Congress under the TARP legislation, should help expand use of the program.
As I noted in the hearing, however, the TARP statute unambiguously gives you the authority and a mandate to take much more aggressive action on foreclosures. While I support the use of TARP funds to stabilize the financial system through bank capital injections, the root causes of this crisis will remain unaddressed until TARP is deployed aggressively to mitigate the estimated 4 to 5 million foreclosures that will otherwise occur over the next two years. The Administration continues to emphasize HopeNow and other private initiatives, but they are simply not an adequate solution going forward.
At least four programs or proposals already exist that you could fund and operate through TARP to provide significant foreclosure relief:
- FDIC Chairman Bair has proposed a broad program to modify and provide credit guarantees for troubled mortgages that could prevent an estimated 1.5 million foreclosures in the next year alone. Chairman Bair believes, as do I, that the authority already exists to run such a program through TARP under Section 109 of the legislation.
- At the hearing economist Martin Feldstein proposed a “mortgage replacement program” allowing the government to substitute new loans for portions of existing troubled mortgages. These new government loans would replace 20% of the borrower’s existing loan, with the remaining private mortgage (now for 80% of the original amount) being “full recourse,” giving the creditor access to the borrower’s assets beyond the security value of the home itself. This will lower borrowers’ monthly payments and provide protection against falling into negative-equity positions that encourage default and foreclosure.
- The recently approved changes to the FHA Hope for Homeowners program, as noted above, will help enhance participation. However, Treasury should augment these changes by using TARP funds (under the authority in Section 109) to reduce the high level of upfront and annual fees required under Hope for Homeowners loans. These high fees are depressing program use, and using TARP funds to pay them down could significantly increase the number of foreclosures averted.
- TARP also mandates that Treasury implement a plan to maximize modifications to mortgages that it acquires. Because mortgages in danger of default clearly qualify as “troubled assets,” I urge you to begin buying whole loans on a large scale for the specific purpose of modifying those loans and keeping the borrowers in their homes.
We can not afford to miss this opportunity to act. Please let me know if my staff or I can be of help in getting these initiatives up and running as quickly as possible.
Sincerely,
BARNEY FRANK
Chairman
|
|
