Elijah Cummings: Recycle TARP Fund To Help Homeowners

June 11 , 2009
by Arthur Delaney

Rep. Elijah Cummings wants to help out-of-work homeowners with the bailout money banks are returning to the government. The Maryland Democrat announced his plan after the Treasury Department said on Tuesday that it would allow 10 participants in the Troubled Asset Relief Program to repay $68 billion in government investments.

"I write to request that you consider allocating a portion of the repaid funds to provide bridge loans to enable homeowners who have lost their jobs to meet their mortgage payments," wrote Cummings in a letter to President Obama. "I am currently drafting legislation -- the Temporary Mortgage Assistance Loan Act of 2009 -- which would authorize the use of repaid Capital Purchase Program funding to accomplish this objective and anticipate introducing it shortly."

Obama hailed the TARP repayments as a positive sign, but the repayments themselves may become a troubled asset as lawmakers wrangle over what the administration should do with the money.

Since Treasury Secretary Timothy Geithner announced in April that the TARP would benefit from billions in repaid funds, members of the House and Senate have questioned the legality of using that money for anything but reduction of the public debt. Geithner subsequently has announced that $25 billion of the repaid funds would go to small banks.

The law says that money coming back from TARP beneficiaries "shall be paid into the general fund of the Treasury for reduction of the public debt." Rep. Brad Sherman (D-Calif.) was the first to cry foul. He has since been joined by Republicans in both chambers, including Sen. David Vitter (R-La.), who wrote Geithner to say, "Your intention to recycle TARP money seems in direct violation of this provision of the law."

In response, Geithner has argued that because the law allows for no more than $700 billion "outstanding at any one time," he can use repaid funds as long as the total amount under the TARP doesn't exceed the cap.

Bailout watchdog Elizabeth Warren weighed in on Tuesday, saying that it appears Geithner has plenty of wiggle room.

"Based on what Secretary Geithner has said, the money will be held at least to be available to be re-spent," said Warren. "I think that the statute is at best ambiguous on whether this money can be recycled or whether this money must be returned to the Treasury, and given the ambiguity, the Treasury Department certainly has grounds for interpreting it the way they want to interpret it, so I think that's what they're going to do with the money unless Congress tells them differently."

Rep. Kevin McCarthy (R-Calif.) and Sen. John Thune (R-S.D.) both introduced measures to ban TARP recycling explicitly. McCarthy's hasn't reached the House floor; Thune's failed in the Senate by one vote.

Cummings says regular folks who've done nothing wrong deserve a break. After all, Wall Street got a break, didn't it?

"In my home State of Maryland, the number of prime borrowers behind on their mortgage payments rose by 90 percent from this period last year, at least in part because of negative home equity and unemployment," Cummings said in a statement. "These are everyday men and women who have done everything right -- they saved up for a good down payment, made sure that they got mortgages they can afford, and paid all of their bills on time. We helped the banks get back on their feet, and it is only right to afford American families this same opportunity."

Here's Cummings' letter to Obama:

June 11, 2009
President Barack Obama

The White House

Washington, DC 20500

Dear Mr. President:

In light of Tuesday's announcement by Secretary of the Treasury Timothy Geithner that 10 of the largest financial institutions participating in the Capital Purchase Program will be permitted to repay government funds, I write to request that you consider allocating a portion of the repaid funds to provide bridge loans to enable homeowners who have lost their jobs to meet their mortgage payments. I am currently drafting legislation - the Temporary Mortgage Assistance Loan Act of 2009 - which would authorize the use of repaid Capital Purchase Program funding to accomplish this objective and anticipate introducing it shortly.

A paper entitled "Reducing Foreclosures" and recently issued by the Federal Reserve Bank of Boston found that negative home equity and adverse life events, e.g., job losses, were the major drivers affecting the likelihood of a mortgage delinquency. The paper further found that a one percent increase in the unemployment rate increases the probability of a 90-day delinquency by 10-20 percent. Given that on Friday, June 5, the Bureau of Labor Statistics reported that the unemployment rate for the nation rose to 9.4 percent in May 2009, and that most major economists predict continuing job losses (albeit fortunately at rates lower than we have seen in recent months), we can likely expect mortgage delinquencies to continue to increase.

The mortgage modification programs implemented by your Administration are working to help many families stay in their homes. However, a mortgage modification may be of little help to those who have no job and no steady income - and therefore targeted assistance is needed to help these individuals. These people want to pay their mortgages, and are frequently tapping into their dwindling savings in an effort to remain current. They are relentlessly looking for new employment and likely will find new jobs as the economy begins to improve. But, in the meantime, they need just a little push to help them stay on top of their mortgage payments and keep the homes they have worked their entire lives to own.

The legislation I am proposing will provide temporary, low-interest loans to help unemployed homeowners with negative equity stay current on their mortgage payments while searching for work. These loans will be short-term in duration (likely no more than 24 months) and capped at specific amounts based on the geographic cost of housing.

As I mentioned at the outset of this letter, I propose that a portion of the principal repaid by the firms that received aid through the Capital Purchase Program be reallocated for these temporary mortgage assistance loans. At the same time that responsible, hard-working homeowners have fallen victim to economic conditions beyond their control, private firms will be repaying funds they received to stabilize the economy for all of us. To direct these funds back out to the people that need them most seems a fitting next chapter in our on-going financial recovery efforts, and will give us a tremendous opportunity to keep responsible Americans in their homes.

I appreciate the opportunity to follow up with you and your housing and economic policy team on this issue at your convenience.

Sincerely,

Elijah E. Cummings

Member of Congress