http://www.bloomberg.com/apps/news?pid=20601087&sid=aB_rf1rurtio&refer=homeDemocrats Seek to Add Subprime Relief to Paulson's Rescue Plan
By Craig Torres and Dawn Kopecki
Sept. 20 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is sending a financial-rescue plan worth about $700 billion to Congress as Democrats prepare to turn it into a vehicle to help people with high-cost mortgages stay in their homes.
The Treasury will run the program to take on illiquid mortgage-related debt, with the Federal Reserve consulting on its design, officials said. Treasury aides are spending the weekend with congressional staff to negotiate a compromise that the House and Senate can vote on next week.
Paulson, Fed Chairman Ben S. Bernanke and other regulators are eager to stop a contagion of credit risk that has toppled three financial giants and forced one into a merger as capital flight began to squeeze Wall Street. Democrats are indicating they want to target relief for households by restructuring loans of struggling borrowers.
``We're going to be buying up a lot of mortgage paper,'' said House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat. ``Between Fannie Mae and Freddie now owned by the federal government and the mortgage paper we'll be acquiring here'' and the Federal Deposit Insurance Corp. running failed bank IndyMac Bancorp Inc., ``we should now be able substantially to reduce foreclosures,'' he said.
Frank said the Treasury was due to present the plan to lawmakers late yesterday.
$800 Billion
The program may be worth about $800 billion, split into $50 billion tranches, said four people briefed on drafts of the Treasury's proposal who spoke on condition of anonymity because details haven't been finalized. The funds, which would last for at least two years, will likely accept mortgage-backed securities and collateralized debt obligations, they said.
The Treasury plans to hire asset managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, one of the people said. Congress will need to raise the limit for the federal debt to allow the government to borrow enough to fund the program, the person said.
Republicans warned against turning the bailout into an agenda.
``Congress and the administration must keep this plan as simple and straightforward as possible,'' said John Boehner, the leading Republican in the House. ``Loading it up to score political points or fit a partisan agenda will only delay the economic stability that families, seniors, and small businesses deserve.''
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