President-elect Barack Obama signaled a clear desire Wednesday to use a significant portion of $700 billion in financial bailout funds to stanch foreclosures by helping struggling homeowners with their mortgages.
"The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes," he said.
Obama's stance represents a policy clash with Treasury Secretary Henry Paulson, who has resisted proposals to use the rescue fund to help guarantee reworked mortgages.
At a Chicago news conference to introduce New Mexico Gov. Bill Richardson as his commerce secretary nominee, Obama said helping people pay their mortgages has to be a component of the rescue fund.
"We've got to start helping homeowners, in a serious way, prevent foreclosures," he said.
On Monday, Paulson said the administration was seeking to halt the record breaking number of foreclosures. But he did not drop his opposition to using the rescue fund for a program being pushed by Federal Deposit Insurance Corp. Chairman Sheila Bair. The FDIC plan would use the rescue fund to help back refinanced mortgages that would lower monthly payments.
Key congressional Democrats have also demanded that the financial rescue money be used to help homeowners.
Obama's comments came a day after the Government Accountability Office, in the first comprehensive review of the rescue package, concluded that the Treasury Department has no mechanisms to ensure that banking institutions limit their top executives' pay and comply with other restrictions.
"We're seeing some areas where we can be doing better in making sure that this money is not going to CEO compensation, that it's protecting tax payers and that the taxpayers are going to get their money back," Obama said.
The auditors acknowledged that the program, created Oct. 3 to help stabilize a rapidly faltering banking system, was less than 60 days old and has been adjusting to an evolving mission.
But auditors recommended that Treasury work with government bank regulators to determine whether the activities of financial institutions that receive the money are meeting restrictions on executive pay, dividend payments and repurchasing of shares.
"Treasury also has no policies and procedures in place for ensuring that the institutions are complying with these requirements or that they are using the capital investments in a manner that helps meet the purposes of the act," auditors said.
In a response to the GAO, Neel Kashkari, who heads the department's Office of Financial Stability, said the agency was developing its own compliance program and indicated that it disagreed with the need to work with regulators.
Congressional Democrats quickly pounced on the findings.
"The GAO's discouraging report makes clear that the Treasury Department's implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers," said House Speaker Nancy Pelosi, D-Calif.
House Financial Services Committee chairman Barney Frank said Treasury's response comes "very close to telling the institutions that they will be free to use the funds as they wish."
"The bad news was confirmation by the GAO in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law to increase lending," Frank said. "The much worse news is Treasury's response that it does not even have the intention of doing so."
The GAO is one of three watchdogs that Congress has assigned to monitor the extraordinary $700 billion financial rescue package, known as the Troubled Asset Relief Program, or TARP. A congressional oversight panel is scheduled to issue its report on Dec. 10. In addition, Congress created an inspector general's office to oversee the program, but the confirmation of veteran federal prosecutor Neil M. Barofsky to the post has been blocked in the Senate by a senator who remains anonymous under Senate practice.
"This report proves the immediate need for oversight of the taxpayer dollars being expended right now as part of TARP," Senate Finance Committee Chairman Max Baucus, D-Mont., said in a statement. "Because of one senator's anonymous block on this nomination, three weeks have been lost — a key element of the TARP oversight program is not in place."
Republican Sen. Jim Bunning of Kentucky, a member of the Senate Banking Committee who opposed the bailout bill, has said he had "serious concerns" with Barofsky's nomination, though he has praised his experience. Bunning spokesman Mike Reynard would not comment on whether Bunning had placed the hold.
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