Such a review threatens to “chill the legitimate exercise of First Amendment rights,” wrote two Republican senators, Orrin G. Hatch of Utah and Jon Kyl of Arizona, in a letter sent to the I.R.S. on Wednesday.

Republicans were quick to point out that the I.R.S. was put under tight restrictions about access to Americans’ tax returns as a result of political shenanigans by the Nixon administration involving tax audits.

Kyl and Hatch’s request also comes on the heels of an allegation by Sen. Charles Grassley (R-Iowa) that the Obama administration improperly disclosed the confidential taxpayer information of Koch Industries during a background call with journalists:

Mr. Grassley called the matter “a very serious allegation.” The White House said it was a simple misunderstanding.

It grew out of a briefing that officials held for reporters in August in discussing possible changes in the tax code for corporations.

A administration official, speaking on the condition of anonymity in the background briefing, pointed to Koch Industries as an example of “multibillion-dollar businesses that are structured as partnerships in ways that allow them to avoid paying sizable corporate taxes.”

Mr. Grassley, in requesting an investigation, said that the official’s statement implied “direct knowledge of Koch’s legal and tax status,” in possible violation of taxpayers’ privacy laws, and may have been “politically motivated.” The White House, in a statement, denied any improper accessing of confidential taxpayer information. “The official’s statement was not based on any review of tax filings and we will not use this example in the future,” the White House said.

The White House, in other words, claims it was simply pointing to Koch Industries as an example of a broad phenomenon, much like the president did when he discussed Koch’s brainchild, Americans for Prosperity, and the possibility that it could be receiving foreign funding. It wasn’t actually sifting through Koch’s taxpayer information. But Grassley’s accusation has been sufficient to prompt an investigation by the Treasury Department’s Inspector General into the issue.

Sens. Hatch and Kyl, for their part, are apparently afraid that Senate Finance Committee Chairman Max Baucus’s request for the IRS to investigate will be a partisan process. In response, they wrote in their own letter to the IRS on Wednesday that, ”I.R.S. audits and investigations are specifically intended to be separated from the political process. We expect the I.R.S. will adhere to those standards despite requests to the contrary from high-level political officials.”

“Fine print obscures the cost of credit and makes it impossible for families to compare products. Too often, families come to understand the legalese only when they get bitten by it,” Warren said. ”Streamlined disclosure can level the playing field and give families better tools to make better choices. This is particularly true in the mortgage market, where borrowers receive stacks of incomprehensible paperwork when they’re looking for a loan.”

Under Warren, the CFPB will combine and clarify two overlapping laws — the Truth in Lending Act (TILA) of 1968 and the Real Estate Settlement Procedures Act (RESPA) of 1974 — so that loan applicants get just one document of easy-to-understand fine print from lenders. It’s a small-bore change in laws, but one that could have a huge impact on consumers — just what progressive activists wanted Warren in place to ensure and enforce.

The signature Obama program to ameliorate this crisis was the Home Affordable Modification Program, or HAMP, which helps homeowners modify their mortgages for lower monthly payments.

But the program has proven frankly disastrous — in many cases hurting the families it was meant to help. The administration expected it to help 3 to 4 million homeowners. It has aided a fraction of that, completing just 434,700 permanent modifications, according to the last scorecard. The process frequently takes months and requires applicants to file extraordinary amounts of paperwork. About half of applicants are rejected during the trial modification period. Worst, for many HAMP participants, their monthly mortgage payment barely goes down. Those homeowners often keep paying a mortgage they can’t afford for a while  before defaulting anyway, meaning the bank is the real winner.

Now, rather than doubling down and helping homeowners, the administration is shuttering, or at least shrinking, the program. As David Dayen noticed, a recent Treasury report on the Troubled Asset Relief Program tucks in the detail that the government is granting HAMP just half of the funds it originally allocated.

As for President Obama’s mortgage modification program, the CBO estimates that the Treasury Department will use no more than $20 billion of TARP funds, less than half of the $50 billion originally allocated. That’s because the CBO expects many fewer people will participate in the program than the government originally expected, a view held by many housing industry observers.

When Obama announced the program in February 2009, he said up to 4 million people could save their homes through the loan modification program, which lowers eligible borrowers’ monthly payments to no more than 31% of their pre-tax income. But more recently, officials have backtracked and said up to 4 million people could qualify for trial modifications, during which loan servicers assess their borrowers’ eligibility and ability to pay.

Through February, around 170,000 distressed homeowners have received long-term modifications under the program. Another $1.5 billion in TARP funds will be used to provide grants to state housing agencies in California, Arizona, Nevada, Florida and Michigan. These agencies are tasked with coming up with programs to assist the unemployed, the underwater who owe more than their homes are worth, and the second-lien holders.

All I can say is that I hope they funnel the additional $30 billion into other, better initiatives to help homeowners.

Reform will prove difficult and will happen slowly because Fannie and Freddie control or backstop so much of the housing market. The two entities guarantee about three-quarters of mortgage-backed bonds — and the government backstops all but just 3 percent of mortgages. Reform them too quickly, and risk cratering the nascent, if extant, housing recovery. “It’s like building an airplane while you’re still flying it,” said David Ledford of the National Association of Home Builders told Bloomberg.

But politicians are eager to make clear they have every intention of returning housing risk to the private market. In his opening remarks, via Politico, Treasury Secretary Timothy Geithner says:

“Fixing this system is one of the most consequential and complicated economic policy problems we face as a country. … We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support.

“We will not support a return to the system where private gains are subsidized by taxpayer losses. We need to delineate more clearly the public policy goals of how best to promote reasonably priced and stable mortgage costs for most Americans from how best to provide access to affordable housing for lower income Americans. […] The failures that produced the system we have today were bi-partisan. The solution must be as well. This is a test for Washington. The stakes are high. The housing industry supports millions of jobs. For many Americans, their home is their largest financial asset.”

It noted: “Although Treasury’s funds under the senior preferred stock purchase agreement permit the company to remain solvent and avoid receivership, the resulting dividend payments are substantial and the company does not expect to earn profits in excess of its annual dividend obligation to Treasury for the indefinite future.”

Today, its twin, Freddie Mac, announced that it lost $4.71 billion in the second quarter, and it asked Treasury for $1.8 billion to remain solvent. It too said it does not foresee any return to profitability.

So how did Freddie Mac end up losing so much more than Fannie Mae? The two have the same mission, but keep separate books. This quarter, Freddie lost $3.8 billion on derivatives, where it had made $2.4 billion on derivatives the same quarter a year ago. It also made $5 billion in credit losses. Still, the organization performed better in the second quarter than the first, where it lost $6.7 billion.

The total bailout for the two will now top $150 billion. Fannie Mae and Freddie Mac, which stabilize and provide liquidity to the housing market by buying up mortgages from lending banks, have a blank check from the government.

Last week, rumors abounded that the Obama administration, realizing Congress will likely enact no more stimulus, might force Fannie and Freddie to write down the value of mortgages — essentially bailing out underwater homeowners. Since, the Treasury Department has quashed the rumor.

It’s hard to blame them. Reforming Fannie and Freddie might prove as complicated as reforming Wall Street. The two government-sponsored enterprises are currently backing around nine in ten new mortgages, propping up a weak housing market at a cost of hundreds of billions to taxpayers. Housing experts worry acting too rashly could crater the tentative housing recovery, but also note that the government, at some point, needs to re-regulate mortgage finance, reform Fannie and Freddie and let the private market take over.

Back in April, the Treasury Department released a list of seven questions to this end, asking for experts to submit ideas for reform. Last week, Rep. Barney Frank (D-Mass.) said he will start work on a housing finance bill this fall. And today, the Obama administration announced it will hold a conference on Aug. 17, bringing together community groups, consumer advocates, housing industry figures and economists to contemplate how to fix the multi-trillion dollar market. In its announcement on the Conference on the Future of Housing Finance, the administration said it will have a housing finance reform bill ready by January — the first concrete date it has set, to my knowledge at least.

“The future of our housing finance system is critical not only to our economic recovery, but also to millions of American homeowners in every corner of our country,” Treasury Secretary Tim Geithner said in the press release. “Now is the time to build on the foundation we laid with the historic Wall Street Reform legislation President Obama signed last week and aggressively move forward to improve our nation’s housing finance system. The Obama administration is committed to delivering a comprehensive reform proposal that protects taxpayers, institutes tough oversight, restores the long-term health of our housing market, and strengthens our nation’s economic recovery.”

The Hiring Incentives to Restore Employment, or HIRE, exempts wages paid to qualifying workers from the employer’s 6.2 percent share of Social Security payroll taxes for the remainder of this year, and gives an additional $1,000 tax credit to employers for every worker they retain for 52 weeks.

The Treasury estimates that so far 4.5 million workers are eligible for the payroll tax exemption — a potential tax savings to employers of $8.5 billion — but Treasury officials worry businesses are unaware of the credit and might not take advantage before it expires in December. The administration will likely push for an extension. Because the tax-credit program originally was budgeted to cost $13 billion, the administration would not necessarily add to the budget deficit if it succeeds in getting wider participation in the effort.

Essentially, the program makes it cheaper for businesses to hire workers that have been unemployed for more than eight weeks. The initiative’s impact on hiring is unclear, as it is impossible to tell whether the employers would have hired the workers if the tax relief were not in effect. But obviously Treasury feels that too few employers know about it, hence the public relations push.

If Congress plans to re-up the program, it might consider expanding it to tackle the problem of long-term unemployment — for instance, suspending payroll taxes for a year or 18 months for Americans who have been out of work for a year or more, thereby encouraging big employers to pick up the most out-of-luck workers.

Among the harsh points he made: HAMP’s program requirements are so arcane that servicers have trouble complying:

The Treasury Department…promised “clear and consistent loan modification guidelines that the entire mortgage industry can use.” There are only two words to describe HAMP’s guidelines: numbing complexity. At last count HAMP had 800 requirements and servicers are expected to certify compliance. With-ever changing regulations, a constant need to re-evaluate past decisions in light of new regulations, and multiple appeals, it is no wonder that the HAMP pipeline became clogged through no substantial fault of servicers.

Ultimately, the program should help just 6 or 8 percent of the initial target of homeowners:

[In previous testimony I noted] that the then-current HAMP pipeline would likely yield only 250,000 homeowners who would ultimately avoid foreclosure under HAMP — only about 6 percent to 8 percent of the original goal. It now looks like my projection will be pretty close to the mark. HAMP activity has slowed markedly, with the number of new monthly trial modifications declining by two-thirds between December 2009 and May, 2010. The number of new permanent modifications in May 2010 was 30 percent below the April 2010 count. As of May 31, there were 340,000 active permanent modifications. Assuming a 40 percent re-default rate, only 200,000 of these permanent modifications will likely be successful over the long-term. There are another 468,000 active trial modifications. Of these, perhaps only 75,000 will become successful long-term permanent modifications. Discounting all the spin, a slowing HAMP pipeline will yield about 275,000 successful long-term permanent modifications, with perhaps another 100,000 successes resulting from future trial modifications. Today, I reiterate my warning about Treasury’s propensity for applying a rosy gloss.

He also said that HAMP has, perversely, ginned up the number of strategic defaults and simply “extended” the length of the market correction:

HAMP’s flawed design and implementation along with Treasury’s early efforts to “shame and blame” the mortgage servicers promoted strategic defaults, as many borrowers came to expect a modification and blamed their servicer for not getting one. HAMP has also slowed down foreclosure processes, pushing the level of heightened foreclosure activity out to 2013 or 2014 and likely extending the period for the market to correction.

All in all, the hearing today has solidified the view that HAMP has largely failed, and in some cases made the housing crisis worse.

“In swiftly making the First Time Homebuyer Credit immediately available to more than 2.6 million homebuyers, a very small number of payments were made to prisoners incorrectly, which the IRS is now taking all steps to recapture and to prevent going forward,” the IRS said. “The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions.” It has also promised to go after and recoup any other losses from fraudulent claims on the effective, if easy-to-game, program.

Other issues in the full report: 2,555 taxpayers received $17.6 million for homes purchased prior to the dates allowed by law; 241 prisoners claimed the credit while serving life sentences. (None of the prisoners cited in the report were filing joint returns either, by the way.) In one case, 67 taxpayers claimed the credit on the same home. All in all, more than 10,000 filed for the credit on homes used by other taxpayers to claim the credit. And, 34 IRS employees claimed the credit despite already owning homes — in addition to the 53 IRS employees publicly censured for doing the same last summer.

First, we remain focused on an issue that I know is of particular relevance to many of you here: fiduciary duty. We believe that retail brokers offering investment advice should be subject to the same fiduciary standard of care as investment advisors, and we will work to include that provision in the final bill. …

Second, we oppose efforts to weaken the consumer protection agency — including, in particular, the carve-out for auto dealers. Despite the fact that the auto dealers originate almost eighty percent of the auto loans in this country — and despite the fact that, after homes, automobile purchases are the most significant financial investments most American families make — the dealer-lenders have lobbied vigorously for a carve-out….

Third, we will work hard to include the so-called “Volcker Rule” provisions, which would protect taxpayers and depositors by separating “proprietary trading” from the business of banking — and, in addition, would limit the size of financial firms by preventing acquisitions that would result in a concentration of more than ten percent of the liabilities in the financial system.

Fourth, we will advocate for inclusion of the strong rules on conflicts of interest and transparency at credit rating agencies.

And fifth, with respect to resolution authority, we will seek to ensure that there are sensible safeguards in place to prevent resolution authority from being used unless absolutely necessary — but that regulators retain the ability to act swiftly and effectively in times of crisis, to protect taxpayers and to minimize the risk of panic or contagion.

Of these, none are particularly controversial at this point — the most notable thing here is the omission of the discussion of derivatives. The administration does not support forcing banks to spin off their swaps trading desks — a provision in the Senate bill that will presumably be dropped.