Bailout redirected to crisis in housing

Those who get bailout money would have to make reports every three months.

McClatchy Newspapers

WASHINGTON — Democrats on Friday revealed a planned revamp of last year’s $700 billion Wall Street bailout, promising to steer more money to smaller lenders and troubled homeowners and pledging tougher oversight.

The legislation will move first through the House Financial Services Committee, and Chairman Barney Frank, D-Mass., wants any recipient of new bailout money to report every three months on how much its lending has increased or decreased and why. He also proposes a number of other tougher reporting and accountability requirements and limits on executive compensation.

To restore the original purpose of the bailout — to help cure housing-sector problems — the proposal would require that at least $50 billion of remaining funds be used to reduce the record number of mortgage delinquencies and foreclosures. The bill directs the Treasury Department to provide a plan to address the housing crisis by April 1.

Lenders gave mixed reviews to Frank’s plan. They liked some provisions and criticized others.

“Chairman Frank’s legislative outline contains positive proposals to assist troubled homeowners and prevent foreclosures,” Steve Bartlett, president of the Financial Services Roundtable, which represents more than 100 major lenders, said in a statement.

The roundtable welcomed provisions that provide more protection from lawsuits to mortgage servicers, but it opposed language that would make some of the tougher executive compensation provisions retroactive to the original recipients of the bailout money.

The initial bailout has been criticized because of a perception that banks simply aren’t lending the money they’ve been given. Originally, the Bush administration said it would use the rescue package to purchase distressed mortgages and thus boost bank balance sheets.

By late last year, however, the administration changed course and said it would instead inject money into banks. It used most of the first $350 billion of the bailout money to that end and later used some of it to support U.S. automakers, which were on the verge of bankruptcy.

A congressionally appointed panel charged with overseeing the bailout issued a scathing report Friday, criticizing the Bush administration for doing little to account for how the rescue money is actually being spent. Harvard law professor Elizabeth Warren, who heads the five-person bailout oversight panel, told CNBC Friday that the administration had failed to create a workable plan.

“It’s about transparency, it’s about accountability, it’s about whether money is going to mortgages as the statute requires, and ultimately it’s about do they have a strategy,” Warren said, concluding the answer is no.