WASHINGTON — It took only a few hours after its release for industry representatives and lawmakers to begin raising significant questions about the Treasury Department's legislative proposal to create a facility that would buy and hold up to $700 billion in troubled assets.

Among the potential issues were that it lacked a clear definition of who could sell to the facility; what assets it would buy; how Treasury would determine the price of such assets; and accounting implications for banks that use the facility.

Treasury Secretary Henry Paulson worked on Sunday to ease these and other concerns — including those of Democratic lawmakers who said the plan did not do enough to assist troubled borrowers — but industry representatives were unconvinced.

"The medicine Treasury is prescribing may be as dangerous to our financial system as the disease they are trying to cure," said Camden Fine, president of the Independent Community Bankers of America.

John Courson, chief operating officer of the Mortgage Bankers Association, laid out the specific questions the trade group would like addressed.

"How will this sale auction process take place?" he asked. "What will be the ramifications of asset sales on the financial institutions? For example, how will they be dealt with and affect a financial institution's balance sheet?"

Accounting issues appeared to be a priority for several industry participants.

"If you are selling assets to the government; don't you have to take losses and doesn't that potentially impair your earnings and your capital?" said Gil Schwartz, a partner at Schwartz & Ballen LLP, and a former Federal Reserve Board official. "So unless you have some sort of relief where you can amortize the losses over time, it seems to me that there is a real reluctance to take those losses. Isn't that a major issue?"

Others agreed, saying it could have accounting implications for institutions that do not use the facility.

"At whatever price the new agency purchases non performing assets will be the price community banks charge down their distressed assets," Mr. Fine said. "Basically the new agency will set the market price. … it potentially could cause serious hits to the bank balance sheets."

Anne Canfield, executive director of the Consumer Mortgage Coalition, said because of accounting concerns, the government should stop efforts to mark assets to market.

"They should put mark to market on hold," she said. "That is what drove this crisis…. The market to market accounting requirements drove this to a head."

Treasury officials were already working to amend the draft legislative language sent to Capitol Hill early Saturday morning. A revised draft obtained by American Banker on Sunday sought to better define what types of financial institutions were eligible to sell loans to the facility. The revised draft specified that banks, thrifts, credit unions, broker-dealers and insurance companies were eligible, but left it unclear whether hedge funds or pension funds could participate.

Also uncertain was whether foreign companies could sell to the facility. Treasury's revised language said eligible companies must have "significant operations in the United States," but said it could include any company if it determined it was important to the economy.

The revision also deleted language that originally limited the facility to purchasing "mortgage-related" assets. Though that still appears to be the focus of the facility, the revised language gives Treasury the power to buy any "troubled" assets, including residential and commercial mortgages.

Ed Yingling, the president of the American Bankers Association, said he wants to ensure that loans held in portfolio are eligible to be sold to the facility.

"We want to make that the banks have the opportunity not just to sell securities but to sell loans," he said in an interview. "If you are going to deal with the issue, you have to deal with it more broadly than just securities and that it's not just a Wall Street issue. It's an issue across the country."

It was unclear if Treasury's changes would satisfy the concerns of industry representatives. The revised language does not detail the process by which institutions sell assets to the facility, or how Treasury would set the price of troubled assets.

It also remained unclear how high the price tag would be for the plan. Treasury asked lawmakers for authority to hold up to $700 billion worth of illiquid mortgage assets "at any one time." In theory, Treasury could use its powers to sell assets back to the private sector at a loss and continue to purchase more illiquid assets. That would raise the potential cost to the government.

Overall, industry representatives expressed concerns that the language was too broad, leaving it impossible to know how the new program would work.

"There's a lot of uncertainty around the proposal," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable. "More details sooner rather than later would be helpful."

Treasury attempted to answer some questions by releasing a fact sheet on Saturday night. But the sheet provided only a few more details, and instead essentially promised that the agency would work out issues later.

"The timing and scale of any purchases will be at the discretion of Treasury and its agents, subject to this total cap," the fact sheet said. " The price of assets purchases will be established through market mechanisms where possible, such as reverse auctions."

It also remained unclear what Democrats may try to add to the proposal when they begin debate on the bill on Tuesday. Lawmakers appeared to be looking for ways to guarantee homeowners would be helped by the plan.

Sen. Barack Obama, the Democratic presidential nominee, said, "We cannot have a plan for Wall Street banks that does not help homeowners stay in their homes and help distressed communities."

Speaking on "Face the Nation," House Financial Services Committee Chairman Barney Frank said Democrats "want to add some language that will slow down the number of foreclosures."

"It's kind of hard to tell the average American that we are going to continue to have foreclosures that destabilize neighborhoods and deprive cities of revenues that they need, but we are going to buy up bad paper," he said.

Democrats also appear to be interested in limiting CEO compensation for companies that use the facility. Treasury officials are said to be against that idea because they do not want to provide an incentive not to participate in the plan.

"It would be a grave mistake to say that we are going to buy up the bad debt that resulted from the bad decisions of these people and then allow them to get millions of dollars on the way out," Rep. Frank said. " The American people don't want that to happen and it shouldn't happen. I don't think it slows things down at all."

Senate Banking Committee Chairman Chris Dodd said Democrats would try and reach an agreement on changes to Treasury's plan by late Sunday or Monday. He said the top goals would be to provide taxpayer protection, foreclosure relief, and beef up oversight and accountability.

To protect taxpayers, Sen. Dodd said taxpayers need to share in any future appreciation of the assets it purchases, and suggested the Federal Deposit Insurance Corp. could play a role in disposing of the assets.

"Maybe the best way to dispose of them would be the FDIC," he said at a press conference. "That doesn't compromise the ability of the secretary to acquire these assets. But obviously the FDIC would not only be concerned about value but also homeownership."

Sen. Dodd also said Democrats want to ensure there are warrants, "guaranteeing that the taxpayer is going to have the ability to recoup some benefits as they get sold."

For homeownership preservation, Sen. Dodd said he is suggesting mortgage bankruptcy reform.

It's hard to explain to homeowners why judges can restructure mortgages on secondary homes in bankruptcy but not on primary residences, he said.

"I would like to see that be included... It would help get to the underlying problem which is the foreclosure issue," he said.

Some Republicans appeared open to add-ons. Asked about adding additional provisions, Sen. Richard Shelby, the Senate Banking Committee's top Republican, also speaking on Face the Nation, answered vaguely he would consider them.

"I would. I don't know what the atmosphere would be like when we get back to Washington and get to work on this at the first of the week," he said.

But Mr. Paulson and other Republicans were trying to keep additional provisions off of the bill.

"There are a lot of well meaning well intentioned ideas out there but they don't need to be a part of this package," said House Minority Leader John Boehner, speaking in a TV interview on Sunday.

Sen. Dodd, however, was adamant some changes are necessary.

"It's going to have to include some of these things I've talked about or it's going to have a hard time," he said.

The industry had also raised concerns about a related plan to backstop the money market mutual fund industry. The Treasury said Friday it would create a $50 billion fund to insure such funds. It was unclear how much of an individual's money market mutual account would be backed by the government.

Mr. Fine said he had heard accounts from members over the weekend that depositors were withdrawing money from banks and thrifts and putting them into money market funds.

Late Sunday, Treasury said, however, that the program would only "provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008."

The ABA said that took care of the competitive issues raised by Treasury's move.

"By limiting this new guarantee to funds that existed on or before last Friday, they have eliminated the incentive for people to move money out of bank accounts to seek a higher government guarantee," Mr. Yingling said.

But some analysts said it was more than just banks that were raising fears of competitive imbalance caused by Treasury's plan.

Karen Shaw Petrou, managing director of Federal Financial Analytics said the multitude of unanswered questions surrounding Treasury's plan is feeding concerns across industries.

"Every body is feeling very ill used," she said. "They feel everyone else was the perpetrator and they are the victim. In my opinion it's a circular firing squad."

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