Paulson Unmoved by Harsh Criticism on Anti-Foreclosure Program

Treasury Department Secretary Henry Paulson faced a very unsatisfied Congress last Tuesday in a hearing on current foreclosure prevention measures, particularly the Troubled Asset Relief Program (TARP). The Democrats at the oversight hearing were highly doubtful that the Department’s program was capable of stemming the housing problem.

The TARP gets money from the Congress-approved $700 billion rescue money to alleviate the housing crisis. So far, the first $350 has been used by Paulson as capital injection into banks. However, Congress has been pushing for more aggressive measures from the Treasury. In fact, Financial Services Committee chairman Barney Frank explicitly told Paulson that the money has to go to foreclosure prevention, as this was one of the original purposes of TARP.

Paulson however was unyielding in his position to use the money to buy individual mortgages or mortgage-backed securities. He also says that the best solution to the foreclosure problem was to expand access to reduced cost mortgage lending, which was why the government acquisition of Fannie Mae was such an important step.

Last Friday, the Federal Deposit Insurance Corporation (FDIC) under Chaiperson Sheila Bair came up with proposal to use $24.4 billion of the 700 billion to stem $1.5 foreclosures. The proposal gives insurance for deposits usually used by corporations for payroll expenses. It would also ensure unsecured and new debt issued between October 14 – June 30 by bank holding companies, banks and thrifts. Paulson has adamantly rejected the idea.

Bair says that the FDIC would put the Temporary Liquidity Guarantee Program to the test on Friday. Her anti-foreclosure scheme has gathered wide support from Congress as opposed to Paulson’s proram. For the Secretary, Congress could only express concern that Main Street America could not even feel the so-called benefits of TARP, among other criticisms.

Still, Paulson seems to be steadfast in his decision to stick with the current anti-foreclosure program. Federal Reserve Chairman Ben Bernanke has so far supported him.