Rep. Edolphus Towns (D-N.Y.), chairman of the Oversight panel, just announced a March 25 hearing to appraise Obama’s anti-foreclosure efforts, particularly the Home Affordable Modification Program. That initiative was sold as a way to help 3 to 4 million struggling homeowners by offering lenders financial incentives to modify mortgages voluntarily. As of last month, only 116,000 permanent mods had been finalized — a number that’s left lawmakers on both sides of the aisle unhappy with HAMP’s progress.

Next week, they’ll have even more data to scrutinize. Neil Barofsky, lead watchdog over the Troubled Asset Relief Program, is scheduled will release his report on HAMP management.

Other witnesses will include Herbert Allison, Jr., the Treasury’s assistant secretary for financial stability, and Gene Dodaro, who heads the U.S. Government Accountability Office.

The reasons behind the gathering are clear: While Wall Street is back to sipping champagne (literally), more than 308,000 homeowners suffered foreclosure last month alone, up 6 percent from the year before, according to RealtyTrac.

Among the issues you should be prepared to address are the following:

• The Federal intervention at AIG, including your role in that intervention.
• The decision to compensate AIG’s credit default counterparties at par.
• The role of the New York Federal Reserve Bank and other Federal agencies in AIG’s failure to disclose to the public the counterparty payments.

There are, of course, other questions to ask. Like why the New York Fed is now lying about its role in trying to shield the payments from the public. And why the lawyer chosen to steer the AIG bailout was plucked from the team representing JPMorgan Chase.

Towns’ letter takes all the wind out of the argument, floated yesterday by Rep. Barney Frank (D-Mass.), that targeting Geithner — but not the Bush-era Treasury officials also involved – amounts to a Republican-driven witch hunt against the Obama administration.

The oversight hearing is scheduled for Jan. 27.

“The Federal Reserve has directed us not to provide you with the documents that it has provided to us, and that it will instead respond to your request directly,” Barofsky wrote in the Jan. 12 letter. “While we regret the Federal Reserve’s position in this matter, production of the requested documents absent the consent of the Federal Reserve in these circumstances could severely limit our ability to receive documentation from the Federal Reserve and other agencies in the future.”

The Fed’s relationship with AIG has been under a microscope since last week, when Bloomberg News reported that more than $60 billion in federal bailout funds intended for the beleaguered AIG were diverted instead to other Wall Street giants. The revelation that Fed officials then urged AIG not to disclose those payments has caused a storm on Capitol Hill, where a number of lawmakers — including Issa, the senior Republican on the House Oversight and Government Reform Committee — want an explanation for the Fed’s shielding of those “backdoor bailouts.”

Barofsky’s recent letter indicates that lawmakers might not get all the information they’re after — but probably also explains why Rep. Edolphus Towns (D-N.Y.), chairman of the oversight panel, subpoenaed the Fed for those documents yesterday. Towns plans to hold a hearing on the AIG scandal next week.

The New York Fed has been under close scrutiny since last week, when it was revealed that the agency had asked AIG not to disclose payments it was making to other Wall Street giants after AIG had accepted tens of billions of dollars in federal bailout cash. Fed officials have argued that the decision to hide the payments was entirely in the hands of AIG lawyers. Yet internal emails show that those same lawyers wanted to report the transactions.

Treasury Secretary Tim Geithner was head of the Fed at the time.

The new subpoenas, Towns said in a statement Tuesday, ”will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout.”

The hearing, for which Towns has asked Geithner to testify, is expected sometime next week.

“More than one year after the first Federal bailout of AIG, the American people continue to question where their tax dollars were really sent when the government rescued this company,” Towns said Friday in a statement.

Geithner was head of the New York Fed when that agency advised AIG not to disclose tens of billions of dollars in payments to Goldman Sachs and other Wall Street giants in late 2008, even after the government had stepped in with $180 billion for AIG. The saga has caused some lawmakers to accuse Fed officials of staging a “backdoor bailout” to Wall Street’s major players through AIG.

The hearing is tentatively scheduled for the week of Jan. 18. As we mentioned earlier, there are others who should get an invite to testify as well.

But yesterday the Obama administration was pulled more deeply into the scandal as well, after newly unveiled BoA documents suggested that both incoming Treasury Secretary Tim Geithner and incoming senior economic adviser Larry Summers had endorsed the merger as well. From The Washington Post:

Bank of America chief executive Kenneth D. Lewis told the company’s board that Federal Reserve Chairman Ben Bernanke told him “that Geithner and, in addition, Larry Summers, were both on board with the transaction,” according to Dec. 22 talking points prepared for a conference call.

Both the White House and the Treasury Department have denied that Geithner and Summers were influential in pushing the merger, even if they knew about it, the Post reported. But their involvement at any level might explain why the Obama administration’s Securities Exchange Commission was so light in penalizing BoA for a failure to tell its shareholders about $3.6 billion in bonuses Merrill was poised to pay its employees around the time of the merger. The $33 million SEC fine — which effectively charged company shareholders for the alleged crimes of company executives — was thrown out by a federal judge last month.  According to U.S. District Judge Jed Rakoff, “The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money . . . is absurd.” Rakoff has ordered a trial to be held in February.

The saga hasn’t been lost on some lawmakers. The House Oversight and Government Reform Committee has undertaken an extensive investigation into the details of the dubious merger — including those surrounding the decision to hide Merrill’s bonus payments from BoA shareholders. The committee will hold its fourth hearing on the episode this Thursday. Witnesses will include SEC Chairman Mary Schapiro, former SEC Chairman Christopher Cox, and Sheila Bair, head of the Federal Deposit Insurance Corporation.

Lewis and BoA have been in hot water over their government-backed deal to acquire the failing Merrill Lynch in December. At the time of the deal, Merrill was set to pay $5.8 billion in employee bonuses — bonuses that BoA executives didn’t reveal to their shareholders, who approved the buyout.

The saga didn’t escape Democratic leaders on the House Oversight and Government Reform Committee, whose ongoing investigation of the deal has gained public prominence with several Capitol Hill hearings. Rep. Edolphus Towns (D-N.Y.), who chairs the panel, issued a statement Wednesday warning Lewis’s that the probe will continue despite the changing of the guard.

Our investigation has uncovered troubling facts about Bank of America’s acquisition of Merrill Lynch, and Mr. Lewis was at the center of this controversy. We hope that Bank of America’s new leadership will quickly repay American taxpayers and help us finally resolve unanswered questioned about this merger.

Bank of America purchased Merrill Lynch in December, even after then-BoA CEO Ken Lewis voiced reservations that the buyout would be a bad move for BoA shareholders due to the bad financial shape of Merrill.

Lewis later told New York’s attorney general that federal officials, notably Bernanke and Paulson, had pressured him to go through with the sale. To sweeten the pot, the White House eventually put up $20 billion of Wall Street bailout dollars to catalyze the deal.

Appearing before Towns’ panel last week, Bernanke defended his role in the saga. Paulson will have his chance  July 16.

The saga made headlines this spring when former BoA CEO Ken Lewis told New York’s attorney general that he was reluctant to go through with the deal because Merrill was in such tough shape financially, but federal officials, including Bernanke, had pressured him to keep quiet about Merrill’s troubles so the deal could proceed.

Today Bernanke conceded that (1) Lewis had expressed interest in backing out of the acquisition, and (2) he urged Lewis to complete the contract, citing the fragility of the economy at the time. But in his strongest defense yet of the Fed’s handling of that deal, Bernanke also said the Fed put no inappropriate pressure on BoA to finalize the deal.

Here’s the money quote from his prepared testimony:

Importantly, the decision to go forward with the merger rightly remained in the hands of Bank of America’s board and management, and they were obligated to make the choice they believed was in the best interest of their shareholders and company. I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management if they decided [not] to proceed with the [acquisition]. Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances.

Rep. Edolphus Towns (D-N.Y.), who chairs the oversight panel, had subpoened the Fed earlier in the month to obtain documents related to the BoA-Merrill deal. His opening statement at today’s hearing set the appropriate tone.

“This was,” Towns said, “a most unusual transaction.”

It seems only one of those requests was honored.

On Tuesday, Towns and Kucinich — along with Rep. Darrell Issa (Calif.), the senior Republican on the oversight panel — announced that they’ve subpoenaed the Fed for its share of the information.

It’s just the latest in a string of controversies surrounding the merger. In April, reports emerged that Lewis claimed he was pressured by Fed Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson to keep silent about Merrill’s decline at the end of 2008 — as well as $4 billion in bonuses Merrill intended to pay its employees — lest the news spook BofA shareholders and kill the acquisition deal. That deal, originally billed as a private transaction, eventually required $20 billion in federal funds to complete.

The House lawmakers want to know to what extent Lewis’ claims are true.