Here We Go Again - Geithner Imposing New Mortgage Requirements on Banks

Isn't this exactly how the government trashed the economy in the first place?

Treasury Secretary Timothy Geithner has told Democratic lawmakers that banks tapping a U.S. rescue fund will be required to modify mortgages and help borrowers avoid foreclosure, according to a person at a briefing.

Geithner said banks will be subject to other requirements under the Obama administration’s plan to capitalize the financial system, the person said. Geithner, who is scheduled to unveil his plan this week, spoke yesterday in Williamsburg, Virginia, where House Democrats met for a retreat.

A requirement to modify mortgages would be a shift from the approach of Geithner’s predecessor, Henry Paulson, who rejected policies requiring the industry to modify loans for troubled borrowers. Paulson helped to launch a voluntary effort called the Hope Now Alliance to reach borrowers at risk of foreclosure and help them change their loan terms.

Democrats in Congress faulted Paulson for spending $350 billion from the $700 billion Troubled Asset Relief Program without setting requirements for use of the money. Lawmakers have urged President Barack Obama to set limits on how banks spend the fresh U.S. capital, and require stepped up lending and foreclosure relief.

House Financial Services Committee Chairman Barney Frank has sponsored legislation, passed by the House, that would direct further expenditure of funds approved for the TARP to mortgage forbearance and other methods of aiding consumers at risk of losing their homes.