WASHINGTON (Reuters) - U.S. lawmakers on Wednesday threatened to withhold the remaining half of the $700 billion of financial bailout cash unless Treasury Department officials do more to help homeowners avoid foreclosure and push banks to extend more credit to consumers.
In early October, Congress authorized the Treasury to use $700 billion of taxpayer money to buy soured assets from banks to ease a financial panic. But a week later, the Treasury backed away from that plan, saying it would instead try to strengthen the financial system by buying shares in the banks.
“We gave them money for one thing and then they used it for another,” said Rep. David Scott, a member of the House of Representatives Financial Services Committee, during a hearing that stretched over five hours and turned contentious at times as lawmakers questioned officials’ sensitivity to the needs of average Americans.
“They said we’d have more oversight; no oversight is in place. These are lies. We’ve been bamboozled. The Treasury secretary owes us an explanation,” said the Georgia Democrat.
The Treasury has committed all but $15 billion of the $350 billion in bailout funds it has at its disposal. [nN17526849] It must inform Congress of its intention to draw down the remaining $350 billion, at which time lawmakers could move to block the funds.
Neel Kashkari, the Treasury official in charge of the program, told the House committee that no decision had yet been made as to whether to tap the rest of the cash, and that Treasury Secretary Henry Paulson has not indicated he will make a request in the next two days.
The panel’s chairman, Rep. Barney Frank, said he believed Treasury should ultimately have access to the funds, but that a consensus needed to be reached first on how best to use them.
Rep. Maxine Waters, a California Democrat who had supported the $700 billion program, pressed Kashkari for actions that would throw troubled homeowners a lifeline.
“Please don’t come here and ask for another penny because if you do, I‘m going to work 24 hours a day with the same people I worked with to support you to make sure that they do not support giving you another dime,” she said.
Kashkari defended the Treasury’s strategy of first trying to stabilize the financial sector by injecting capital into banks, saying confidence had to return before lending could pick up.
He said the department was looking “very seriously” at a plan that would issue 30-year fixed rate mortgages at 4.5 percent, about a full percentage point below current levels.
“Reducing interest rates to get borrowers off the sidelines so they can afford to buy a home for the first time or afford a bigger home is the only thing that’s going to help home prices, so we think it has some merit,” Kashkari said.
Rep. Donald Manzullo said Kashkari is woefully out of touch with the needs of ordinary Americans and seems more sympathetic to the executives of bailed out financial firms than people about to lose their homes to foreclosure.
“I don’t think you understand at all the pain and the hurting that’s going on in this country,” said Manzullo, an Illinois Republican. “On the basis of your answers, I think you should step aside.”
The General Accountability Office, the investigative arm of Congress, also faulted the Treasury for failing to develop a plan that might help reverse a wave of foreclosures.
Congress had an “expectation that Treasury would work with lenders ‘to achieve aggressive loan modification standards’ to mitigate foreclosures, (but it) has not yet developed a program to maintain home ownership,” Gene Dodaro, the head of the GAO, told the House committee.
GAO issued a report last week criticizing the Treasury’s handling of the bailout program. It said Treasury had yet to address a number of critical issues, including how it would gauge whether it was meeting the program’s goals, a point stressed by Dodaro on Wednesday.
“Although Treasury has said that it expects the institutions to increase the flow of credit, Treasury has not yet determined whether it will impose reporting requirements on the participating financial institutions,” he said.
A separate report on Wednesday from a congressionally appointed panel that shares oversight responsibility for the program urged Treasury to lay out a clear strategy. [nN09288369]
The chair of that panel, Harvard University law professor Elizabeth Warren, also offered testimony on Wednesday, as did panel member Rep. Jeb Hensarling, a Texas Republican who declined to sign the report. Hensarling said he had concerns on the panel’s transparency and accountability.
The panel’s report mostly raised questions for Treasury to consider, but Warren did lob criticism at confusing government programs to address “the huge driving problem” of foreclosures.
“It’s going to take a comprehensive solution,” she said. “We cannot keep taking slices of approaches here.”
Writing and additional reporting by Patrick Rucker; Editing by Chizu Nomiyama