Frank’s TARP Makeover Could Include Foreclosure Mitigation

House Financial Services Committee chairman Barney Frank, D-Mass., on Friday released the outline of a bill that aims to amend the Troubled Asset Relief Program (TARP) by strengthening accountability, closing loopholes, increasing transparency and requiring the Treasury Department to “take significant steps on foreclosure mitigation.” The outline seems to be Frank’s response to mounting TARP criticism; it crossed the wire within moments of the Congressional Oversight Panel releasing biting criticism on the “significant gaps” in the Treasury’s ability to track TARP funds injected into financial institutions. The six sections of the outline include a modification of the TARP and its oversight, foreclosure relief, clarification of the automobile manufacturers’ bailout, clarification of additional TARP uses, Hope for Homeowners (H4H) improvements and a home buyer stimulus. “It further requires that Treasury act promptly to permit the smaller community financial institutions that have been shut out so far to participate on the same terms as the large institutions that have already received funds,” the outline reads, in part. Under Frank’s proposed makeover of the TARP, the second half of the $700 billion funds will be “conditioned on the use of a minimum of $50 billion for foreclosure mitigation.” His language would require secretary Henry Paulson to develop a comprehensive plan to prevent and mitigate residential mortgage foreclosures by March 15, 2009. The required elements of the plan include a guarantee program for qualifying loan modifications under a systematic plan, bringing down the costs of Hope for Homeowner loans, “either through coverage of fees, purchasing H4H mortgages to ensure affordable rates, or both.” The plan would also need to establish a program for loans to pay down second lien mortgages that are impeding a loan modification, grant servicer incentives and assistance to stimulate modifications, and include the purchase of whole loans for the purpose of modifying or refinancing them. Included in the proposed Hope for Homeowners improvements are an elimination of the 3 percent upfront premium, an increased maximum loan to value ratio from 90 percent to 93 percent for borrowers with mortgage debt-to-income ratios over 31 percent. The government’s profit-sharing of appreciation over market value of the home at the time of refinance would also be eliminated. Frank’s outline also would require the Treasury to develop a program outside of TARP funding — instead using funding available through the Housing and Economic Recovery Act of 2008 — to “stimulate demand for home purchases and clear inventory of properties” by promoting more affordable mortgages through purchasing mortgages and mortgage-backed securities. “In developing such program, Treasury shall provide mechanisms to ensure availability of such reduced rate loans through financial institutions that act as either originators or as portfolio lenders,” the outline reads, in part. “Treasury shall make the affordable rates available under this program available in connection with Hope for Homeowner refinancing program.” Under the TARP modifications, Frank stipulated that the “Treasury shall require any existing or future institution that receives funding under TARP to provide no less than quarterly public reporting on its use of the funding.” The Treasury must reach an agreement with the financial institution on how the funds are to be used, and then actively pursue an examination of the the institution’s compliance with that agreement and with limits on executive compensation, to the extent that the Treasury may even have an observer at board and committee meetings of the institutions. The outline of the proposed legislation calls for a clarification of the Treasury’s authority to provide assistance to automaker financing arms and the automobile manufacturers themselves — which was something Paulson had repeated stated he would not do, as automakers fall outside of the nation’s financial market and instead more closely fall into the nation’s manufacturing sector. In the same vein, Frank would require a clarification of the Treasury’s authority to intervene in other markets. The language in the outline specifies Treasury action to establish facilities that would support the availability of consumer loans — like student and auto loans — commercial real estate loans and support for issuers of municipal securities. The full text of the proposed legislation was unavailable at the time this story was published. Read the outline. Write to Diana Golobay at

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