WASHINGTON (AP) — With job losses mounting and lawmakers preparing to funnel money to Detroit automakers, a top House Democrat said Monday that a new government effort to help borrowers avoid foreclosure will have to wait until after President-elect Barack Obama takes office.
Wall Street rallied for the second straight day with the major market indexes jumping more than 3 percent. The Dow Jones industrials' nearly 300-point advance gave the blue chips their highest close in a month.
Speaking to reporters during a housing industry forum in Washington, Rep. Barney Frank, D-Mass., said any use of $700 billion in financial industry rescue money to aid homeowners will come after President George W. Bush leaves office next month.
While the Federal Deposit Insurance Corp. has proposed to use $24 billion from the financial bailout to help borrowers, Frank declined to specify how much should be spent but said it won't require new legislation.
Frank also threatened to tie up the remaining half of the $700 billion financial industry rescue money unless the Bush administration provides some of it for borrowers facing foreclosure.
"They're not going to get the (money) unless they get very serious about the foreclosure modifications and showing us how we're going to get some lending out of the banks," said the House Financial Services Committee chairman. "At this point I don't see that happening."
The Treasury Department says $335 billion has been allocated from the first half of the program, which was enacted more than two months ago. Treasury Secretary Henry Paulson, who is overseeing the program, is weighing tapping the second $350 billion. The main goal of the program is to get financial institutions to lend money more freely again.
The Bush administration has focused mainly on voluntary industry efforts to modify loans, and those have not stopped the surge in foreclosures.
"Imagine how many foreclosures we would have if the financial system had been allowed to collapse," Neel Kashkari, director of the Treasury Department office overseeing the $700 billion program, said at the same conference.
But critics say many in the public — and lawmakers on Capitol Hill — were led to believe that some of the money would go to avoiding foreclosures and are frustrated that it has yet to do so.
In a report to be released Tuesday, a special bipartisan commission chaired by former HUD Secretaries Henry Cisneros and Jack Kemp takes aim at the Bush administration for the current foreclosure crisis, citing its lax enforcement of fair housing laws and lackluster response for problems that have disproportionately hit large poor and minority populations.
Calling the system "broken," the seven-member panel calls for the creation of an independent agency separate from the Department of Housing and Urban Development to more vigorously enforce fair housing laws.
"The federal government needs to be in the business of getting things done," said Kemp, who served under President George H.W. Bush. "And right now, fair housing enforcement is not getting done. That's why we need a new, independent agency that won't get mired in politics."
Discussion at Monday's forum, sponsored by the federal Office of Thrift Supervision, focused on how broad the government's intervention should be, rather than whether the government should play a role. The U.S. is on track for 2.25 million foreclosures this year, more than double traditional levels.
Mark Zandi, chief economist at Moody's Economy.com, said the public is likely to be more sympathetic to efforts to assist borrowers, because the link between the foreclosure crisis and the sinking economy is increasingly clear in the minds of most Americans.
"It's now in every corner of the country," Zandi said.
However, data released Monday show that more than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year already are in default again.
The data raise questions about whether government money may be better spent on creating jobs, rather than averting foreclosures, said John Reich, director of the federal Office of Thrift Supervision.
But the reports aren't detailed enough to show how well the programs are working or which borrowers have been most helped, said FDIC Chairman Sheila Bair.
The report "raises more questions than answers because it fails to define, in any meaningful way, the modifications that have redefaulted," she said in a statement e-mailed after the forum. "It's impossible to make any judgment about the redefault rates of sustainable modifications versus cosmetic modifications that by their nature are more likely to redefault."
New Jersey Gov. Jon Corzine called for a three- to six-month halt to foreclosures while the government works out a more aggressive plan. "We need a bottom-up approach ... by modifying people's mortgages and helping them stay in their homes," he said.
The U.S. economic picture has darkened over the past month. One in 10 Americans with a mortgage is either behind or in foreclosure, and more than 500,000 jobs were lost in November.
Unemployment stands at 6.7 percent, and the worldwide credit markets have only improved modestly from the freeze that led Congress to approve a $700 billion bailout before the election.
Investors seeking safety during the ongoing economic and financial peril are pouring money into Treasury securities, driving down rates on short-term bills to record lows. The Treasury Department auctioned $27 billion worth of three-month Treasury bills Monday, fetching a discount rate of 0.005 percent, and another $27 billion in six-month bills was auctioned at a discount rate of 0.300 percent, both all-time lows.
Also Monday, House Speaker Nancy Pelosi said negotiations are continuing with the White House on a $15 billion auto bailout that could go to a vote this week, and three more large U.S. employers announced layoffs.
Dow Chemical Co., based in Midland, Mich., said it will slash 5,000 jobs and shutter 20 plants to rein in costs, Maplewood, Minn.-based 3M Co. is cutting 1,800 jobs in the fourth quarter, while Anheuser-Busch InBev said it would cut about 1,400 U.S. jobs to help save the world's largest brewer at least $1.5 billion a year. Three-quarters of the job cuts will be at Anheuser's North American headquarters in St. Louis.
Elsewhere, privately held newspaper publisher Tribune Co. filed for bankruptcy. Tribune, which is controlled by real estate magnate Sam Zell, owns the Los Angeles Times, Chicago Tribune and the Baltimore Sun, plus the Chicago Cubs and Wrigley Field.
AP Writers Jeannine Aversa, Christopher S. Rugaber, Hope Yen and Daniel Wagner contributed to this report.
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