Treasury says mulling ways to cut foreclosures

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 and maintaining the strength of our communities," Treasury Interim Assistant Secretary Neel Kashkari said in testimony prepared for delivery to a U.S. House of Representatives 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.

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.

Treasury Secretary Henry Paulson said on Wednesday the $700 billion bailout approved by Congress just more than a month ago was not the appropriate source of funds for what at that time was an evolving FDIC plan. "That is a subsidy or spending program. The (rescue program) was investment, not spending," he said.

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.

(Reporting by Tim Ahmann; Additional reporting by Karey Wutkowski; Editing by Andrea Ricci)