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TARP Czar Defends Decision to Divert Funds From Mortgages

Mortgage Daily

Published On: November 14, 2008
TARP Czar Defends Decision to Divert Funds From MortgagesNeel Kashkari testifies before House subcommittee

November 14, 2008

By MortgageDaily.com staff
Despite the Bush administration’s decision to divert Troubled Asset Relief Program funds from troubled mortgage assets to investments in banks, the Treasury’s man running TARP promises help with loan securitzations.Two days ago, U.S. Treasury Secretary Henry M. Paulson Jr. revealed his agency’s decision to abandon TARP purchases of mortgage-related securities in favor of direct capital injections into U.S. banks.

“Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets,” Paulson said in Wednesday’s statement. “Our assessment at this time is that this is not the most effective way to use TARP funds.”

Today, Neel Kashkari, Interim Assistant Treasury Secretary for Financial Stability, defended the department’s decision before the House Committee on Oversight and Government Reform, Subcommittee on Domestic Policy.Kashkari highlighted three critical objectives — stabilizing financial markets, supporting the housing market and protecting taxpayers. He also noted that cutting the number of foreclosures is a priority. He said quickly strengthening bank capital was the most timely, effective step to improve credit market conditions.

Dozens of bank applications have been approved so far.

But Kashkari offered some hope for the battered secondary market.

“We are examining strategies to support consumer access to credit outside the banking system, specifically, the asset-backed securitization market,” Kashkari stated according to a transcript of his prepared testimony. “This market has played a critical role for many years in lowering the cost and increasing the availability of consumer finance.

“However, the market is currently in distress and its illiquidity is raising the cost and reducing the availability of car loans, student loans and credit cards.”

President Bush announced today he intends to nominate Neil M. Barofsky to be TARP’s Special Inspector General. Barofsky is U.S. Attorney for the Southern District of New York, chief of the Mortgage Fraud Group and formerly chief of the securities fraud unit.

Treasury photo of Neel Kashkari

Related:

Troubled Mortgage Asset Purchases Curtailed
The U.S. Treasury secretary said today that the Troubled Asset Relief Program will not be used to purchase troubled mortgage assets. He said the $700 billion fund would be better utilized for capital investment.
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