By Lori Montgomery and David Cho
House Speaker Nancy Pelosi said yesterday that the Bush administration must do more to help struggling borrowers stay in their homes before Congress will agree to release any more money to the Treasury Department's financial system bailout effort, which is running low on cash.
Pelosi (D-Calif.) said the White House has 'totally ignored' Democratic demands to stem the rising tide of home foreclosures, one of the fundamental goals of the $700 billion rescue program. So far, the Treasury has spent $335 billion, leaving it with only $15 billion of the first installment of the money.
Pelosi said she has asked Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to draft legislation that 'insists that the provisions of the law be honored before we release any more funds.' Frank has said that a portion of the bailout money should be used to help homeowners exchange high-cost loans for more affordable mortgages backed by the federal government.
The Treasury has been debating whether to request the next half of the bailout money, a debate that grew more urgent last week when the Senate rejected a Bush administration proposal to extend $14 billion in emergency loans to cash-starved Detroit automakers. The administration is now considering using the financial rescue package -- the Troubled Asset Relief Program, or TARP -- for that purpose, and Treasury officials are growing increasingly concerned that they could be left without enough cash to stem another financial crisis, such as the collapse of a bank or other major institution.
Late Sunday, the Bush administration reaffirmed its desire to help General Motors and Chrysler, which face the imminent threat of bankruptcy without government aid.
'An abrupt bankruptcy for the autos could be devastating for the economy,' President Bush told reporters aboard Air Force One during an unannounced trip from Iraq to Afghanistan. 'So we're now in the process of working through with the stakeholders a way forward, and we're not quite ready to announce that yet.'
White House officials have been tight-lipped about when the assistance might come or what form it might take for fear of affecting financial markets. Bush said he does not expect 'a long process because of the economic fragility of the autos.'
The administration also has declined to say whether Treasury Secretary Henry M. Paulson Jr. expects to seek the next installment of TARP funds. 'It is an open question whether we get to that point,' White House spokesman Tony Fratto said yesterday.
Congressional Democrats say they don't expect a request to come before Jan. 6, when the new Congress is scheduled to convene. Once a request is made, lawmakers have 15 days to pass a measure that would block release of the money. With many lawmakers in both parties furious about Treasury's use of TARP funds, such a measure would likely pass both chambers of Congress, congressional aides said, though it may not have sufficient support to survive a veto by Bush.
In conjunction with the TARP measure, House Democrats plan to press a companion bill that would require Treasury officials to strengthen restrictions on executive compensation at firms that accept federal assistance and to require that some portion of the money be used to help homeowners.
Frank has said he wants to revamp the Hope for Homeowners program in the Federal Housing Administration, which encourages lenders to forgive a portion of a homeowner's debt in exchange for government insurance against default. Only 111 lenders applied to the program in October, its first month, and Frank has said he wants to lower the fees required for participation.
Frank also wants to fund a version of a plan promoted by Federal Deposit Insurance Corp. Chairman Sheila C. Bair to modify mortgages so that homeowners' payments would amount to less than a third of their income. To entice lenders to go along with the plan, the federal government could insure some portion of the losses for borrowers who received help but still defaulted on their loans.
Some administration and Federal Reserve officials have raised questions about whether Bair's proposal is the most effective way to help homeowners. In recent testimony before Congress, Federal Reserve Chairman Ben S. Bernanke said the government could end up paying vast amounts for homeowners whose home values have fallen substantially, suggesting that the underlying value of the property must also be considered, not just a borrower's income level.
Paulson has said repeatedly that Bair's plan and other proposals don't do enough to distinguish between borrowers who could be helped to stay in their homes and those destined for default because their incomes and mortgages are hopelessly mismatched. Treasury officials also want to make sure President-elect Barack Obama is supportive before they adopt any plan.
'We would not want to put something in place this close to Inauguration Day unless it is something the next administration wants to carry out,' said Treasury spokeswoman Michele Davis.