Thursday, December 18, 2008

The Rising Chorus for Using Bailout Funds for Mortgage Relief

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

This month has seen a wave of criticism about the Treasury Department's use of the first $350 billion authorized by the Emergency Economic Stabilization Act, the "bailout" enacted on October 3, 2008. This has included a GAO (Government Accountability Office) report on December 2 entitled "Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency." Much of the criticism has focused on the seeming lack of attention to the residential foreclosure problem that some see as the heart of our economic troubles.

On December 4, Federal Reserve Chairman Ben Bernanke urged using more governmental funds in new ways to prevent home foreclosures, saying "“More needs to be done,” . . . . “Policy initiatives to reduce the number of preventable foreclosures should be high on the agenda.”

On December 8, House Financial Services Committee chairman Barney Frank (D-Mass) threatened to withhold further bailout funds unless there was some direct relief provided in it for foreclosure relief: "They're not going to get the [funds] unless they get very serious about the foreclosure modifications and showing us how we're going to get some lending out of the banks" . . . . "At this point I don't see that happening."

On December 10, the Congressional Oversight Panel established by the Emergency Economic Stabilization Act released its first report listing a series of key questions which will guide its oversight work. One of the top questions in this 38-page report: "Is [Treasury's] Strategy Helping to Reduce Foreclosures?" The subsidiary questions within this broader one:
What steps has Treasury taken to reduce foreclosures? Have those steps been effective? Why has Treasury not generally required financial institutions to engage in specific mortgage foreclosure mitigation plans as a condition of receiving taxpayer funds? Why has Treasury required Citigroup to enact the FDIC mortgage modification program, but not required any other bank receiving TARP funds to do so? Is there a need for additional industry reporting on delinquency data, foreclosures, and loss mitigation efforts in a standard format, with appropriate analysis? Should Treasury be considering other models and more innovative uses of its new authority under the Act to avoid unnecessary foreclosures?
The Oversight Panel's report spells out in detail its concerns about each of these questions.

On the day of this report's release the Panel's outspoken chair, Harvard professor Elizabeth Warren, made clear her perspective in an interview on the public radio business program Marketplace:
There has to be an overall notion that we're going to deal with the genuine economic problems in the United States right now. So, for example, we're having a problem -- a real, visible problem -- in the housing market right now. And we've got, potentially, $700 billion commitment of American dollars out there for which, right now, it's not being used. There's not even a hint that it's going to be used to address any part of that problem. That tells me there's not a coherent strategy here. You know, if the American family fails, then there won't be any banks to save.
Earlier this week House Speaker Pelosi joined these other voices for using the bailout funds for mortgage relief. She asserted that the Administration has "totally ignored" provisions of the Emergency Economic Stabilization Act to help reduce mortgage foreclosures, saying: "Absolutely nothing has been done to respect that part of the legislation." She said that legislation is under consideration that would condition the release of more bailout funds on more direct efforts in this area.

Lastly, at a news conference earlier this month, President-Elect Obama responded to a question about the use of the bailout funds by referring to the foreclosure issue without prompting:
One last component of that that I think has to be emphasized, and I've said this before, we've got to start helping homeowners in a serious way prevent foreclosures. The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes. And if we help Main Street, ultimately we're going to help Wall Street. So that's an area that I'm particularly interested in.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

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