Austin Kilgore | 01.20.09 www.dsnews.com

President Barack Obama took the oath of office Tuesday, and on his first day on the job, he faces a myriad of challenges in helping the economy recover from a deep recession and a housing market in peril.

The Senate paved the way for Obama and the Treasury Department, now run by Stuart Levey, pending the Senate confirmation of Obama's appointee, Timothy Geithner, to use the second batch of Troubled Asset Relief Program funds. Obama has said he will direct the Treasury to use a portion of the $350 billion to help small businesses and homeowners, and will hold banks that receive TARP funds more accountable for how they use the money. Democrats are also expected to pass legislation to allow bankruptcy judges to modify primary residence mortgages with so-called “cram downs” where mortgage principals can be reduced.

Holding banks accountable for the way they spend TARP funds will be crucial for any attempt the Obama Administration takes at freeing up the credit market. Banks, even those receiving TARP funds, have been slow to lend, instead using the money to build up cash reserves. The Treasury has begun requiring banks to submit monthly reports detailing how much they lend, as well as details on purchases of mortgage-backed and asset-backed securites.

Democrats in Congress had hoped to present Obama with a sweeping economic stimulus package today, but the intricacies of the proposed deal made that impossible. The $825 billion proposal is expected to land on Obama's desk by the middle of February, and will provide $275 billion in tax cuts and $550 billion in spending on increased unemployment benefits and investment in new technology and eco-friendly initiatives.

In addition, the proposal includes giving the secretary of Housing and Urban Development the authority to increase FHA and FHFA loan limits in high-cost areas back to their 2008 levels. This would allow Fannie Mae and Freddie Mac to purchase and guarantee loans up to $729,750 in high-cost areas.