By Phil Mattingly, CQ Staff

Lawmakers continued to lash the Treasury Department on Friday for abandoning a centerpiece of the bailout plan it pitched to Congress and for failing to rein in lavish executive pay at AIG and other corporate beneficiaries of federal aid.

Republicans and Democrats on a House Government Oversight and Reform panel criticized Treasury’s handling of the crisis at a hearing on the $700 billion rescue program (PL 110-343) Congress approved last month.

Treasury Secretary Henry M. Paulson Jr. “rendered obsolete entire sections” of the law when he formally announced this week that the department was sidelining a plan to purchase mortgage-backed securities and other troubled assets in favor of other measures, domestic policy subcommittee Chairman Dennis J. Kucinich , D-Ohio, charged.

The asset purchases were thought to be the cornerstone of the program when Congress cleared it on Oct. 3. But Treasury soon turned its attention to making a direct federal investment in banks, saying such a move would more quickly ease the nation’s credit crunch.

While most lawmakers either voiced support for Treasury’s shift in focus or said nothing about it for weeks, Paulson’s announcement has triggered widespread second guessing on Capitol Hill. Lawmakers have also been urging the Bush administration to be more aggressive in helping homeowners renegotiate troubled mortgages, saying the housing crisis remains a key component of the country’s larger economic woes.

“Treasury, by taking this action that de-emphasizes loan modifications, has essentially sent a signal to banks that this is not something you care about,” Kucinich, who voted against the bailout legislation, complained to Neel Kashkari, the Treasury undersecretary for financial stability.

Kashkari reiterated Paulson’s concerns about the spending nature of the program during testimony in front of a House Oversight and Government Reform subcommittee on Friday.

But, Kaskari said, Paulson “thinks it’s a very interesting idea” that “Congress should look at and consider.”

“We are using all of the tools available to the federal government to try to solve the credit crisis and help homeowners,” he told the subcommittee. “We worked very hard with members of Congress to design the program with maximum flexibility.”

Kashkari said the rate of mortgage modifications had tripled in the past year. A loan modification program announced this week at mortgage finance giants Fannie Mae and Freddie Mac also established a standard for the industry to follow, he said.

“It’s not going to be perfect, but we’re taking aggressive action,” Kashkari testified.

The law also directs other federal agencies to work on averting home foreclosures, he noted.

Rep. Darrell Issa of California, the panel’s top Republican, accused Treasury of “playing a bait-and-switch game.” Issa also voted against the bailout plan.