Paulson Explains Change in Foreclosure Fund Spending

In a prepared statement to be delivered at the U.S. House Financial Services Committee hearing on Tuesday, Treasury Secretary Henry Paulson said the Troubled Asset Relief Program (TARP) was not intended to be an economic recovery and stimulus package. He said that the $700 billion TARP was meant to stabilize the country's financial system.

Paulson further explained that since the summer when the proposal was handed to Congress, the U.S. financial crisis has spread worldwide, worsening further the U.S. financial situation that the Treasury had to take action to save failed financial institutions in order to stabilize the country's financial system.

As a response to expected questions about foreclosure prevention, Paulson stated in the prepared document that the Treasury's decision to buy equities in U.S. financial institutions will ultimately become more effective in preventing foreclosures than if Treasury carried out the proposed purchase of delinquent loans from mortgage banks. He explained that there are other programs being worked out to help troubled homeowners avoid foreclosures.

Paulson is expected to be interrogated intensely at the House hearing, especially by Democratic lawmakers who have previously expressed their disappointment at Paulson's decision. The Democrats said they approved TARP mainly because they expected the program to help millions of Americans facing foreclosures and help stop the soaring number of foreclosure homes across the country.

Among the lawmakers that Paulson faces at the hearing will be Democratic Representative Frank Barney, chairman of the House Financial Services Committee, who has been vocal in his assertions that the foreclosure prevention objective was clearly spelled out as one of the options in the original TARP proposal presented to and approved by Congress in the summer.

Of the first $350 billion that Paulson got from the $700 billion TARP, $125 billion was given to nine major banking firms, including JPMorgan Chase, Citigroup and Wells Fargo, and $40 billion was provided to international insurance firm AIG.