Rep. Barney Frank said Monday he is pushing a proposal to use some of the interest the government collects from the financial industry bailout to give loans to unemployed homeowners struggling to pay the mortgage.
The lack of aid to jobless homeowners has been identified as a big weakness in the Obama administration's plan to tackle the mortgage crisis. A report by a congressional oversight panel said last month that the $50 billion program "was not designed to address foreclosures caused by unemployment," which are now the main cause of default.
Frank, chairman of the House Financial Services Committee, said in Fall River and New Bedford at appearances with Housing and Urban Development Secretary Shaun Donovan that he favors providing government help in the form of federal loans to homeowners who have lost their jobs until they get another job.
"These are people who are very responsible, very thoughtful. They got a home, it's above water, they've got equity, but they're unemployed, and you can't afford mortgage payments on unemployment," said Frank, D-Mass.
Frank said the program would be funded using interest banks pay on the $700 billion Wall Street bailout, known as the Troubled Asset Relief Program.
Frank spokesman Steve Adamske said the program was actually developed by Congress in the 1970s but never funded. The proposal is now part of legislation introduced in September, called the Main Street TARP bill.
It would provide $2 billion in TARP money for low-interest loans to homeowners who have lost their jobs but who have good prospects for being able to resume mortgage payments in the future. The emergency loans would be provided for up to 12 months with the possibility of extending them for another year.
A Treasury Department spokeswoman declined to comment on Monday when asked about Frank's proposal.
On Capitol Hill, many lawmakers have complained about the slow pace of loan modifications. Sen. Jack Reed, D-R.I., said in an interview last week that his staff has been considering ways to make mortgage companies do more loan modifications.
Reed said the Obama administration's foreclosure assistance program hasn't been working fast enough for his home state. Thirteen percent of Rhode Island homeowners were delinquent or in foreclosure as of June 30, the same as the number nationally, according to the Mortgage Bankers Association.
The foreclosure crisis is increasingly tied to joblessness, Reed said, as more borrowers with good credit lose their jobs and their ability to make monthly payments.
Lenders, meanwhile, have modest programs to aid the unemployed. Citigroup, for instance, has been reducing payments to an average of $500 for three months for some customers who have recently lost their jobs. Other banks give homeowners a break from payments for as long as six months.
AP Business Writers Alan Zibel and Daniel Wagner contributed to this report from Washington.