Barney Frank, chairman of the House Financial Services Committee, has introduced legislation that would amend the Troubled Asset Relief Program and force the Treasury Department to spend $50 billion of the second half of the $700 billion TARP funding to help solve the foreclosure crisis.

Frank’s proposal includes the condition that the second half of the TARP fund will be released only if the Treasury Department issues a program that would allocate at least $50 billion for foreclosure mitigation. He required funding for a program that would pay down second lien mortgages and grant incentives to mortgage servicers in order to stimulate loan modifications and help prevent further foreclosures.

Meanwhile, Senate Finance Committee member John Ensign has also introduced legislation that would suspend tax rules related to cancellation of indebtedness. The bill would enable companies to strengthen their finances, helping them fight the effects of the economic downturn.

The cancellation of indebtedness rules require the taxation of canceled corporate debt. Ensign proposed that a company receiving, for example, $400 million in cancelled debts would not be taxed for the whole $400 million. Ensign also proposed that creditors related to the original issuance of the debt would also receive tax breaks.

Legislators in Congress, especially the Democrats, refocused their efforts on the foreclosure crisis because of rising public criticism of how the Treasury Department spent the first half of the $700 billion TARP program. Treasury Henry Paulson spent most of the $350 billion to help financial institutions, arguing that stabilizing the financial sector was more important at the time he released the funds.

Frank made sure in his legislation that the foreclosure problem would receive attention in the second release of the TARP fund. But he also said that the administration of President-elect Obama will have flexibility in how it will craft its own foreclosure mitigation program.