The bailout of Citigroup is generating a wide range of opinions across the blogosphere and among key legislators, with House Financial Services Committee chairman Barney Frank (D-MA) saying Monday that the bailout underscored the need to do more to help troubled mortgage borrowers stay in their homes. “The decision by the Secretary of the Treasury to use TARP funds for Citigroup underlines the contrast between the administration’s activity in this area and its failure to take similarly decisive action to reduce mortgage foreclosures,” Frank said in a statement. “As I told Secretary Paulson when he informed me this morning of his decision to provide funds for Citigroup, I believe it is essential that TARP funds be used immediately to fund mortgage foreclosure relief.” Frank has been consistent in pounding the drum for direct, government-led foreclosure intervention. Last week, he sent a letter to Paulson urging the Treasury secretary to do more to prevent foreclosures. “[T]he TARP statute unambiguously gives you the authority and a mandate to take much more aggressive action on foreclosures,” he wrote in the letter. “While I support the use of TARP funds to stabilize the financial system through bank capital injections, the root causes of this crisis will remain unaddressed until TARP is deployed aggressively to mitigate the estimated 4 to 5 million foreclosures that will otherwise occur over the next two years.” Frank has, in particular, thrown his support behind proposal from the Federal Deposit Insurance Corp. to streamline the loan modification process and to provide federal guarantees for redefault risk in underwriting modified loans. That proposal has been met by stiff headwinds from Republican leaders, who argue that the proposal encourages further borrower defaults. Paulson in particular has said the strategy taken with TARP funding thus far is enough, and said he would not look to access further funds until the next administration takes office and a new Treasury secretary is installed. “The most important thing we can do to mitigate the housing correction and reduce the number of foreclosures is to increase access to lower cost mortgage lending,” he said in testimony on Capitol Hill last week. “The actions we have taken to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, together with our bank capital program, are powerful actions to promote mortgage lending.” Paulson helped orchestrate the so-called streamlined modification process now being implemented at the GSEs; the program applies to all borrowers 90 or more days down on their mortgage. Lenders nationwide — and in particular, Fannie Mae (FNM) and Freddie Mac (FRE) — have put moratoriums in place halting foreclosures and evictions while they look for ways to restructure mortgages. Even ING DIRECT announced a moratorium Monday morning. “While most of the first $350 billion has now been committed, tens of billions remain available for immediate use to reduce foreclosures even before drawing on the second $350 billion,” Frank said. “There is no good reason for further delay.” Well, you know, except for the whole moral hazard thing. HousingWire has recently covered the reactions of more than a few market participants, who seem to be growing increasingly angry about the bailout options being pushed for troubled borrowers. The San Francisco Chronicle’s Kathleen Pender last week went ahead and asked the question that’s likely on every borrower’s mind right now: am I an idiot to keep paying your mortgage? Her conclusion: for borrowers with little equity in their homes, “it’s getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.” Write to Paul Jackson at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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