Treasury says mulling ways to cut foreclosures

By Patrick Rucker and Karey Wutkowski

WASHINGTON (Reuters) - The Treasury Department is "aggressively" looking at ways to reduce skyrocketing home foreclosures under a $700 billion financial rescue program that so far has aimed at shoring up banks, the official in charge of the program said on Friday.

"We continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications, which are a key part of working through the necessary housing correction," Treasury Interim Assistant Secretary Neel Kashkari told a panel of the U.S. House of Representatives Oversight and Government Reform Committee.

Kashkari also said steps taken by both U.S. policy-makers and overseas counterparts to ease the global credit crisis have had an impact. "Our system is stronger and more stable than just a few weeks ago," he said.

Still, the Treasury's chief official for confronting the housing crisis was scolded by lawmakers for doing too little to aid troubled borrowers.

"The Treasury Department has abdicated its responsibility to stem the tide of mortgage foreclosures," said Rep. Dennis Kucinich, whose subcommittee hosted Kashkari. "They have passed the responsibility back to the private sector and inadequate government efforts."

At a news conference on Wednesday, Treasury Secretary Henry Paulson said he is duty-bound to try and prevent foreclosures under the financial rescue package but he resisted the idea of spending taxpayer money on such an effort.

Paulson lauded industry-led efforts to ease monthly payments but said direct spending to aid borrowers would break from the conventions of the rescue legislation which has so far been used to invest in banks in an effort to support credit markets.

"The TARP was investment, not spending," said Paulson, who holds the purse strings to the Troubled Asset Relief Program.

FDIC MOVES AHEAD

Kashkari's testimony came shortly after the Federal Deposit Insurance Corporation announced a plan to modify about 2.2 million home mortgage loans at a projected cost to the government of $24.4 billion.

The FDIC said the money to cover the program would come from the $700 billion bailout approved by Congress just more than a month ago. However, Treasury Secretary Henry Paulson said on Wednesday it would not be appropriate to use the money for the FDIC plan.

Kashkari said the Treasury was focusing on three "critical priorities" under the rescue program: strengthening the capital base of the financial system, supporting the asset-backed securitization market critical to consumer finance and increasing foreclosure mitigation efforts.

As Paulson had on Wednesday, Kashkari defended the Treasury's decision to focus initially on recapitalizing banks.

"As the markets deteriorated in October, it was clear to Secretary Paulson and (Federal Reserve) Chairman (Ben) Bernanke that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks," he said.

(Additional reporting by Timothy Ahmann; Editing by Chizu Nomiyama)