Use TARP to Stop Foreclosures, Bair Says

At the House Financial Services Committee hearing on Tuesday, FDIC Chairman Sheila Bair argued for her agency’s proposal of stopping the flood of foreclosures using money from the Troubled Asset Relief Program.

Bair called on the Treasury Department to spend a portion of the $700 billion TARP program to encourage mortgage lenders to offer loan restructuring schemes by giving them loan guarantees and funds for credit and by bearing part of the cost of delinquencies.

Within the next couple of years, Bair warned, if the federal government does not directly help distressed borrowers to avert foreclosures, the country would be saddled with four to five million foreclosed homes and millions more of homeless Americans.

It has been reported that the White House and the Treasury rejected the FDIC proposal because of the potential exposure of the federal government to big losses, as the estimated cost of the FDIC Plan could reach $24 billion. The White House argued that the TARP was intended to spur investing and not spending.

To reassure legislators of the viability of the FDIC plan, Bair enumerated measures to lessen the risk of program failure, including:

• ongoing evaluation of bank capital and earnings to ensure that they are maximizing funds for lending
• monitoring of banks to ensure they are using government money for foreclosure-related lending
• control of dividends and executive compensation and
• ban on dividend increases and buybacks

Bair also called on more community banks to join the TARP program to help communities prevent foreclosures, saying that over 1,000 community banking firms have already filed their applications for the program.

In support of Bair’s proposal, House Financial Services Committee Chairman Barney Frank asserted that Congress may not authorize the issuance of the second $350 billion from the $700 billion TARP plan if banks refuse to increase their lending to help borrowers in danger of foreclosure.

Related Posts:

• Local Communities Clamor for More Measures against Foreclosures
• How Foreclosures Can Ruin Friendships
• Stop Foreclosures, Massachusetts Community Leaders Demand
• Housing Bill Momentum Slowed Down by Senate Issues
• Second $350 Billion of TARP: For Whose Foreclosure Program?