House Democrats have drafted their own mortgage bailout plan that calls for more oversight of the Treasury in its purchase of mortgage assets. As Congress grapples with the legislation, Republican presidential nominee John McCain is suspending his campaign to return to Washington, D.C., to deal with the crisis.
The Emergency Economic Stabilization and Corporate Accountability Act would require that the Treasury disclose purchases made under the bill within 48 hours, though real-time disclosures are recommended. The agency would be required to report to Congress within 60 days of its first acquisition and every 90 days thereafter.
"The draft includes intensive GAO oversight of the program including comprehensive audits and constant on-site monitoring of acquisitions, financials, and fulfillment of financial stability, foreclosure prevention and other goals," the draft says.
The Treasury's request to be shielded from review of its purchases has been scratched, and the latest draft calls for judicial courts to be able to review the program. But a court could not grant injunctions or relief.
The Treasury would be required to broadly solicit proposals for any contracted work and publish requests from potential vendors, according to the draft. Bidding firms would be required to disclose conflicts-of-interest, acknowledge a fiduciary duty and restrict information sharing where conflicts exist. Broad carve-outs requested by the Treasury have been eliminated.
The Federal Deposit Insurance Corporation would be considered an asset manager for whole loans.
The draft also requires that warrants, or similar assets, be obtained from companies that sell directly to the Treasury. An institution's financial strength must be considered -- as the program should not be used for companies that are destined to fail anyway.
The draft also calls for help to delinquent borrowers on loans acquired under the plan, including prodding servicers to utilize the Hope for Homeowners Programs or enabling loan modifications. Tenants in properties securing purchased assets would be given the ability to complete their leases if they are current.
Purchases would be limited to financial institutions that are organized, regulated and have significant operations in the United States, though coordination with foreign financial authorities and central banks to establish similar plans would be required.
Executives of institutions that sell loans under the plan would be prohibited from being paid "a perverse incentive for inappropriate or excessive risk-taking." A "claw-back" provision would apply to bonuses and incentive compensation if executives are later found to have provided false or inaccurate information, and golden parachute payments would be prohibited for two years.
Companies that participate in the plan would be required to provide proxy access for shareholders to nominate board members. They would also need to ensure shareholders are given the opportunity to vote on non-binding executive compensation plan and prohibit severance compensation while the government holds warrants.
The draft also includes provisions for mortgage cram downs, which are vehemently opposed by mortgage bankers.
Sen. McCain told reporters this afternoon that he would suspend his campaign to return to Washington and deal with the financial crisis.
Democratic rival Sen. Barack Obama is expected to follow McCain's lead.