Sept. 21 (Bloomberg) -- House Financial Services Committee Chairman Barney Frank sought authority to oversee and audit Treasury Secretary Henry Paulson's $700 billion program to buy bad mortgage investments.

Frank, a Democrat from Massachusetts, proposed that the U.S. Comptroller General ``commence ongoing oversight of the activities and performance'' of the plan, according to legislative language Frank's office presented to Treasury officials today. He also wants limits on compensation of corporate executives who benefit from the program and more work by the Treasury to help mortgage borrowers.

Paulson contends that illiquid debt backed by home loans on bank balance sheets is curtailing the flow of credit to companies and consumers, threatening to bring the economy to a halt. Frank's response aims to give Congress a check on the unbridled powers the Treasury secretary seeks to use taxpayer money to stabilize financial markets.

``As much as I disagree with Barney Frank on many things, he is absolutely right on'' insisting that the Treasury's actions have oversight, said David Kotok, chairman of Cumberland Advisors Inc., which manages about $1 billion in Vineland, New Jersey. ``The greater you empower government the greater the risk that power is abused.''

Frank's Senate counterpart, Christopher Dodd, said Democrats from that body are planning to send their ideas to the Treasury later today. Republicans, meanwhile, plan to press for limits on use of any profits from the Treasury's program.

Powers to Audit

The Comptroller General, who serves as director of the Government Accountability Office, and other GAO officials would have access to financial records, have audit powers and would report findings to Congress under Frank's proposal. The GAO is Congress' financial watchdog.

Frank also recommended limits on executive compensation of companies participating in the debt-purchase plan, called the Troubled Asset Relief Program, or ``TARP.''

The Comptroller General's oversight would include assessing how well the program is meeting other goals Frank set out, including foreclosure prevention, consumer protection and stabilization of the financial system, according to the document.

Paulson asked Congress for unfettered authority to buy devalued mortgage-related securities from investment firms in an effort to keep the financial system from coming to a standstill. Paulson's proposal, sent to Congress as legislative text, would prevent courts from reviewing the Treasury's actions while raising the nation's debt ceiling. Frank is proposing adding his provisions to Paulson's plan.

`Clean and Quick'

``We need this to be clean and quick, and we need to get it in place,'' Paulson said today in an interview with ABC News's This Week with George Stephanopoulos. ``We need this program in days in order to protect the American people.''

He added that the plan ``should be able to allow us to do more to help prevent preventable foreclosures.''

Frank said he and Paulson ``have a difference on what's clean'' in an interview today with CBS's ``Face the Nation.''

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

``We cannot just turn over $700 billion in taxpayer money and not insist that that taxpayer is going to be protected in this,'' Senate Banking Committee Chairman Dodd told reporters today after a conference call with Senate Democratic leaders.

Regular Reports

The comptroller will submit reports of findings at least every 60 days to the House Financial Services Committee, the Senate Banking Committee and the Treasury Department Inspector General on the activities and performance of the program, according to Frank's draft language.

The program will issue financial statements annually to the public and Congress, with the GAO auditing them.

Companies seeking to sell assets through the program must meet ``appropriate standards'' for executive pay and shareholder disclosure, Frank proposed. These include limits on pay to exclude incentives for executives to take risks that are ``inappropriate or excessive.''

``It's entirely legitimate to say as a condition of buying the bad debt, we want some compensation restrictions,'' Frank said today. ``I don't want the federal taxpayer to be at risk for their bad debt, and then the guy who incurred the debt gets tens of millions of dollars on the way out the door.''

Foreclosure Aid

Frank's proposal would require officials to urge the companies that service the home loans underlying the assets the Treasury buys to participate in a new foreclosure-prevention program.

That Federal Housing Administration program, set up in July, is aimed at insuring up to $300 billion in refinanced 30- year fixed-rate mortgages for about 400,000 borrowers after loan holders agree to forgive some of the balance to help struggling homeowners.

Treasury officials would coordinate with the FHA, Federal Deposit Insurance Corp. and other government agencies that hold mortgage-related assets to acquire those assets that would help their ability to modify and restructure loans.

The Treasury facility and the agencies will be required to report to the House Financial Services and Senate Banking committees on these efforts and ``what, if any constraints limit their collective ability to make existing loans perform over time,'' according to Frank's proposal.

Senate's Intentions

Senate Democrats are developing their own additions to the package designed to protect taxpayers and homeowners, and establish oversight and accountability for the Treasury program, Senator Charles Schumer, chairman of the congressional Joint Economic Committee, told reporters.

``You can't give all this power to any one person, particularly a non-elected person as much as we respect the secretary, without making sure that conflicts of interest are dealt with, that people are treated fairly,'' said Schumer, a New York Democrat.

To help provide relief on mortgage payments, Dodd and Schumer said they were considering proposing a provision that would allow judges to modify loan terms for struggling borrowers in bankruptcy proceedings.

Paulson's plan included language that said decisions by the Treasury Secretary ``are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.''

Frank's request for review by the GAO and the Comptroller General ``is standard political accountability,'' said Walker Todd, a former Federal Reserve Bank of Cleveland attorney who is now a research fellow at the American Institute for Economic Research in Great Barrington, Massachusetts.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: September 21, 2008 18:23 EDT