Geithner sees taxpayer recovery on bailout
June 22, 2010 Geithner told the Congressional Oversight Panel at a hearing
that banks have repaid about 75 percent of the bailout money they
received, and the government's investments in aided banks have
brought taxpayers $21 billion. He acknowledged there likely will be
a partial loss from the rescue of giant insurer American
International Group Inc., into which the government plowed $182
billion.
Geithner also said the auto industry has made significant
structural changes, and the prospects that General Motors and
Chrysler will repay the nearly $60 billion in bailout money have
improved.
The oversight panel was created by Congress to oversee the
Treasury Department's financial bailout program that came in at the
height of the financial crisis in the fall of 2008. The panel has
been critical of the politically unpopular program, known as the
Troubled Asset Relief Program or TARP, which included aid to banks,
AIG and the automakers. It is scheduled to expire on Oct. 3, and no
new money will be available after that.
The panel's chair, Elizabeth Warren, underlined concerns that
regional and small banks could be facing $200 billion to $300
billion in losses in the next few years on commercial real estate
loans, and thousands of banks could fail as a result.
"This panel must know whether Treasury has carefully monitored
the financial system to measure potential risks," Warren said. She
criticized the department for not conducting additional stress
tests of the financial system, as was done with the 19 biggest
banks.
Panel members also criticized progress of the Obama
administration's flagship effort to help people in danger of losing
their homes, which is falling flat, according to numbers released
Monday. More than a third of the 1.24 million borrowers who have
enrolled in the $75 billion mortgage modification program have
dropped out. That exceeds the number of people who have managed to
have their loan payments reduced to help them keep their homes.
Last month alone,155,000 borrowers left the program, which is
administerd by the Treasury Department - bringing the total to
436,000 of those who have dropped out since it began in March 2009.
Analysts expect the majority will end up in foreclosure and that
could slow the broader economic recovery.
Richard Neiman, an oversight panel member who is New York's top
banking regulator, said many families that relied on the
government's program to keep their homes "may be left out in the
cold." He asked Geithner why thousands of mortgage modifications
were canceled.
Geithner said the homeowners involved were unable to prove
income and therefore their eligibility for the program. Around 1.2
million people were given temporary modifications without proof of
income as a stopgap measure, he said, and they were eventually
required to provide the documentation. Many of them were
disqualified as a result. The government "erred on the side of
speed," he said.
Addressing the role of banks that collect mortgage payments,
also known as loan servicers, Geithner said, "Servicers have done
a terrible job of making sure they have done everything they can"
to help struggling homeowners. Under the program, the services
receive a total of up to $75 billion in tax incentives to reduce
borrowers' monthly payments.
Geithner said AIG is making progress in restructuring its
operations and divest businesses so that taxpayers can recoup their
investment. However, he added, the government's investment "will
likely still result in some loss."
The Congressional Budget Office has estimated that taxpayers
will lose $36 billion. A large part of the money needed to repay
the government will come from the sale of assets.
To date, banks have received a total of $205 billion under the
TARP program; $142 billion has been repaid. The government has
received $17 billion in dividend payments from banks.