WASHINGTON — A senior Treasury official says the department intends to get a program to help struggling homeowners revise mortgages up and running soon.
Neel Kashkari, who is heading the government’s $700 billion financial rescue effort, told Congress the Treasury is working hard on the plan. It could include setting standards for changing mortgages to make them more affordable and giving loan guarantees to banks that meet them.
Kashkari told a Senate hearing, “We are passionate about doing everything we can to avoid preventable foreclosures.”
The Treasury also is looking at using some of the $700 billion available under the federal bailout law to buy up mortgages and renegotiate their terms to make them more affordable.
Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee that heard testimony from Kashkari and other federal regulators, stressed the importance of requiring banks receiving billions from the government in capital infusions under the bailout to meet strong, comprehensive standards for modifying mortgages.
Schumer pressed Kashkari for the requirement as a condition for getting the government money, rather than allowing any voluntary plan.
“We’re feeding them (the banks) a little too much dessert and not making them eat their vegetables,” Schumer said.
Sheila Bair, the chairman of the Federal Deposit Insurance Corp., put forward the notion of the government providing loan guarantees to banks and other loan servicers as an incentive for them to modify troubled borrowers’ loans.
The FDIC “would be happy to serve as contractor” for a federal program for overhauling mortgages, she said.
While Bair, a Bush appointee and independent regulator, has publicly nudged the administration in recent months to go further on remedies for troubled home borrowers, Democrats have voiced vigorous support for her and have applauded her public pleas on this front.
Kashkari, in his appearance at the hearing, emphasized Treasury’s areas of agreement with Bair.
He agreed with Bair that existing government programs to prevent foreclosures — built on voluntary participation by mortgage lenders and servicers, and revamping an average 2,000 loans a month — haven’t been sufficient in face of the tide of defaults.