House Report 110-419 - HOMEOWNERS' DEFENSE ACT OF 2007

[House Report 110-419]
[From the U.S. Government Publishing Office]

110th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 110-419

======================================================================

HOMEOWNERS' DEFENSE ACT OF 2007

_______

October 31, 2007.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Frank of Massachusetts, from the Committee on Financial Services,
submitted the following

R E P O R T

together with

ADDITIONAL VIEWS

[To accompany H.R. 3355]

[Including cost estimate of the Congressional Budget Office]

The Committee on Financial Services, to whom was referred
the bill (H.R. 3355) to ensure the availability and
affordability of homeowners' insurance coverage for
catastrophic events, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.

CONTENTS

Page
Amendment........................................................ 2
Purpose and Summary.............................................. 8
Background and Need for Legislation.............................. 8
Hearings......................................................... 10
Committee Consideration.......................................... 11
Committee Votes.................................................. 11
Committee Oversight Findings..................................... 15
Performance Goals and Objectives................................. 15
New Budget Authority, Entitlement Authority, and Tax Expenditures 15
Committee Cost Estimate.......................................... 15
Congressional Budget Office Estimate............................. 15
Federal Mandates Statement....................................... 19
Advisory Committee Statement..................................... 19
Constitutional Authority Statement............................... 19
Applicability to Legislative Branch.............................. 19
Earmark Identification........................................... 19
Section-by-Section Analysis of the Legislation................... 19
Additional Views................................................. 23

AMENDMENT

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title.--This Act may be cited as the ``Homeowners' Defense
Act of 2007''.
(b) Table of Contents.--The table of contents for this Act is as
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.

TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

Sec. 101. Establishment; status; principal office; membership.
Sec. 102. Functions.
Sec. 103. Powers.
Sec. 104. Nonprofit entity; conflicts of interest; audits.
Sec. 105. Management.
Sec. 106. Staff; experts and consultants.
Sec. 107. Federal liability.
Sec. 108. Authorization of appropriations.

TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

Sec. 201. Establishment.
Sec. 202. Liquidity loans and catastrophic loans for state and regional
reinsurance programs.
Sec. 203. Reports and audits.
Sec. 204. Funding.

TITLE III--GENERAL PROVISIONS

Sec. 301. Qualified reinsurance programs.
Sec. 302. Definitions.
Sec. 303. Regulations.

SEC. 2. FINDINGS AND PURPOSES.

(a) Findings.--The Congress finds that--
(1) the United States has a history of catastrophic natural
disasters, including hurricanes, tornadoes, flood, fire,
earthquakes, and volcanic eruptions;
(2) although catastrophic natural disasters occur
infrequently, they will continue to occur and are predictable;
(3) such disasters generate large economic losses and a major
component of those losses comes from damage and destruction to
homes;
(4) for the majority of Americans, their investment in their
home represents their single biggest asset and the protection
of that investment is paramount to economic and social
stability;
(5) historically, when a natural disaster eclipses the
ability of the private industry and a State to manage the loss,
the Federal Government has stepped in to provide the funding
and services needed for recovery;
(6) the cost of such Federal ``bail-outs'' are borne by all
taxpayers equally, as there is no provision to repay the money
and resources provided, which thereby unfairly burdens citizens
who live in lower risk communities;
(7) as the risk of catastrophic losses grows, so do the risks
that any premiums collected by private insurers for extending
coverage will be insufficient to cover future catastrophes
(known as timing risk), and private insurers, in an effort to
protect their shareholders and policyholders (in the case of
mutually-owned companies), have thus significantly raised
premiums and curtailed insurance coverage in States exposed to
major catastrophes;
(8) such effects on the insurance industry have been harmful
to economic activity in States exposed to major catastrophes
and have placed significant burdens on existing residents of
such States;
(9) Hurricanes Katrina, Rita, and Wilma struck the United
States in 2005, causing over $200,000,000,000 in total economic
losses, and insured losses to homeowners in excess of
$50,000,000,000;
(10) since 2004, the Congress has appropriated more than
$58,000,000,000 in disaster relief to the States affected by
natural catastrophes;
(11) the Federal Government has provided and will continue to
provide resources to pay for losses from future catastrophes;
(12) when Federal assistance is provided to the States,
accountability for Federal funds disbursed is paramount;
(13) the Government Accountability Office or other
appropriate agencies must have the means in place to confirm
that Federal funds for catastrophe relief have reached the
appropriate victims and have contributed to the recovery effort
as efficiently as possible so that taxpayer funds are not
wasted and citizens are enabled to rebuild and resume
productive activities as quickly as possible;
(14) States that are recipients of Federal funds must be
responsible to account for and provide an efficient means for
distribution of funds to homeowners to enable the rapid
rebuilding of local economies after a catastrophic event
without unduly burdening taxpayers who live in areas seldom
affected by natural disasters;
(15) State insurance and reinsurance programs can provide a
mechanism for States to exercise that responsibility if they
appropriately underwrite and price risk, and if they pay claims
quickly and within established contractual terms; and
(16) State insurers and reinsurers, if appropriately
backstopped themselves, can absorb catastrophic risk borne by
private insurers without bearing timing risk, and thus enable
all insurers (whether State-operated or privately owned) to
underwrite and price insurance without timing risk and in such
a way to encourage property owners to pay for the appropriate
insurance to protect themselves and to take steps to mitigate
against the risks of disaster by locally appropriate methods.
(b) Purposes.--The purposes of this Act are to establish a program to
provide a Federal backstop for State-sponsored insurance programs to
help homeowners prepare for and recover from the damages caused by
natural catastrophes, to encourage mitigation and prevention for such
catastrophes, to promote the use of private market capital as a means
to insure against such catastrophes, to expedite the payment of claims
and better assist in the financial recovery from such catastrophes.

TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

SEC. 101. ESTABLISHMENT; STATUS; PRINCIPAL OFFICE; MEMBERSHIP.

(a) Establishment.--There is established an entity to be known as the
``National Catastrophe Risk Consortium'' (in this title referred to as
the ``Consortium'').
(b) Status.--The Consortium is not a department, agency, or
instrumentality of the United States Government.
(c) Principal Office.--The principal office and place of business of
the Consortium shall be such location within the United States
determined by the Board of Directors to be the most advantageous for
carrying out the purpose and functions of the Consortium.
(d) Membership.--Any State that has established a reinsurance fund or
has authorized the operation of a State residual insurance market
entity shall be eligible to participate in the Consortium.

SEC. 102. FUNCTIONS.

The Consortium shall--
(1) work with all States, particularly those participating in
the Consortium, to gather and maintain an inventory of
catastrophe risk obligations held by State reinsurance funds
and State residual insurance market entities;
(2) at the discretion of the affected members and on a
conduit basis, issue securities and other financial instruments
linked to the catastrophe risks insured or reinsured through
members of the Consortium in the capital markets;
(3) coordinate reinsurance contracts between participating,
qualified reinsurance funds and private parties;
(4) act as a centralized repository of State risk information
that can be accessed by private-market participants seeking to
participate in the transactions described in paragraphs (2) and
(3) of this section;
(5) use a catastrophe risk database to perform research and
analysis that encourages standardization of the risk-linked
securities market;
(6) perform any other functions, other than assuming risk or
incurring debt, that are deemed necessary to aid in the
transfer of catastrophe risk from participating States to
private parties; and
(7) submit annual reports to Congress describing the
activities of the Consortium for the preceding year.

SEC. 103. POWERS.

The Consortium--
(1) may make and perform such contracts and other agreements
with any individual or other private or public entity however
designated and wherever situated, as may be necessary for
carrying out the functions of the Consortium; and
(2) shall have such other powers, other than the power to
assume risk or incur debt, as may be necessary and incident to
carrying out this Act.

SEC. 104. NONPROFIT ENTITY; CONFLICTS OF INTEREST; AUDITS.

(a) Nonprofit Entity.--The Consortium shall be a nonprofit entity and
no part of the net earnings of the Consortium shall inure to the
benefit of any member, founder, contributor, or individual.
(b) Conflicts of Interest.--No director, officer, or employee of the
Consortium shall in any manner, directly or indirectly, participate in
the deliberation upon or the determination of any question affecting
his or her personal interests or the interests of any Consortium,
partnership, or organization in which he or she is directly or
indirectly interested.
(c) Audits.--
(1) Annual audit.--The financial statements of the Consortium
shall be audited annually in accordance with generally accepted
auditing standards by independent certified public accountants.
(2) Reports.--The report of each annual audit pursuant to
paragraph (1) shall be included in the annual report submitted
in accordance with section 102(7).

SEC. 105. MANAGEMENT.

(a) Board of Directors; Membership; Designation of Chairperson.--
(1) Board of directors.--The management of the Consortium
shall be vested in a board of directors (referred to in this
title as the ``Board'') composed of not less than 3 members.
(2) Chairperson.--The Secretary of Treasury, or the designee
of the Secretary, shall serve as the chairperson of the Board.
(3) Membership.--The members of the Board shall include--
(A) the Secretary of Homeland Security and the
Secretary of Commerce, or the designees of such
Secretaries, respectively, but only during such times
as there are fewer than two States participating in the
Consortium; and
(B) a member from each State participating in the
Consortium, who shall be appointed by such State.
(b) Bylaws.--The Board may prescribe, amend, and repeal such bylaws
as may be necessary for carrying out the functions of the Consortium.
(c) Compensation, Actual, Necessary, and Transportation Expenses.--
(1) Non-federal employees.--A member of the Board who is not
otherwise employed by the Federal Government shall be entitled
to receive the daily equivalent of the annual rate of basic pay
payable for level IV of the Executive Schedule under section
5315 of title 5, United States Code, as in effect from time to
time, for each day (including travel time) during which such
member is engaged in the actual performance of duties of the
Consortium.
(2) Federal employees.--A member of the Board who is an
officer or employee of the Federal Government shall serve
without additional pay (or benefits in the nature of
compensation) for service as a member of the Consortium.
(3) Travel expenses.--Members of the Consortium shall be
entitled to receive travel expenses, including per diem in lieu
of subsistence, equivalent to those set forth in subchapter I
of chapter 57 of title 5, United States Code.
(d) Quorum.--A majority of the Board shall constitute a quorum.
(e) Executive Director.--The Board shall appoint an executive
director of the Consortium on such terms as the Board may determine.

SEC. 106. STAFF; EXPERTS AND CONSULTANTS.

(a) Staff.--
(1) Appointment.--The Board of the Consortium may appoint and
terminate such other staff as are necessary to enable the
Consortium to perform its duties.
(2) Compensation.--The Board of the Consortium may fix the
compensation of the executive director and other staff.
(b) Experts and Consultants.--The Board shall procure the services of
experts and consultants as the Board considers appropriate.

SEC. 107. FEDERAL LIABILITY.

The Federal Government and the Consortium shall not bear any
liabilities arising from the actions of the Consortium. Participating
States shall retain all catastrophe risk until the completion of a
transaction described in paragraphs (2) and (3) of section 102.

SEC. 108. AUTHORIZATION OF APPROPRIATIONS.

There are authorized to be appropriated to carry out this title
$20,000,000 for each of fiscal years 2008 through 2013.

TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

SEC. 201. ESTABLISHMENT.

The Secretary of the Treasury shall carry out a program under this
title to make liquidity loans and catastrophic loans under section 202
to qualified reinsurance programs to ensure the solvency of such
programs, to improve the availability and affordability of homeowners'
insurance, to incent risk transfer to the private capital and
reinsurance markets, and to spread the risk of catastrophic financial
loss resulting from natural disasters and catastrophic events.

SEC. 202. LIQUIDITY LOANS AND CATASTROPHIC LOANS FOR STATE AND REGIONAL
REINSURANCE PROGRAMS.

(a) Contracts.--The Secretary may enter into a contract with a
qualified reinsurance program to carry out the purposes of this Act as
the Secretary may deem appropriate. The contract shall include, at a
minimum, the conditions for loan eligibility set forth in this section.
(b) Conditions for Loan Eligibility.--A loan under this section may
be made only to a qualified reinsurance program and only if--
(1) before the loan is made--
(A) the State or regional reinsurance program submits
to the Secretary a report setting forth, in such form
and including such information as the Secretary shall
require, how the program plans to repay the loan; and
(B) based upon the report of the program, the
Secretary determines that the program can meet its
repayment obligation under the loan and certifies that
the program can meet such obligation;
(2) the program cannot access capital in the private market,
including through catastrophe bonds and other securities sold
through the facility created in title I of this Act, as
determined by the Secretary, and a loan may be made to such a
qualified reinsurance program only to the extent that such
program cannot access capital in the private market;
(3) the Secretary determines that an event has resulted in
insured losses in a State with a qualified reinsurance program;
(4) the loan complies with the requirements under subsection
(d) and or (e), as applicable; and
(5) the loan is afforded the full faith and credit of the
State and the State demonstrates to the Secretary that it has
the ability to repay the loans.
(c) Mandatory Assistance for Qualified Reinsurance Programs.--The
Secretary shall upon the request of a qualified reinsurance program and
subject to subsection (b), make a loan under subsection (d) or (e) for
such program in the amount requested by such program (subject to the
limitations under subsections (d)(2) and (e)(2), respectively).
(d) Liquidity Loans.--A loan under this subsection for a qualified
reinsurance program shall be subject to the following requirements:
(1) Preconditions.--The Secretary shall have determined that
the qualified reinsurance program--
(A) has a capital liquidity shortage, in accordance
with regulations that the Secretary shall establish;
and
(B) cannot access capital markets at effective rates
of interest lower than those provided in paragraph (3).
(2) Amount.--The principal amount of the loan may not exceed
the ceiling coverage level for the qualified reinsurance
program.
(3) Rate of interest.--The loan shall bear interest at an
annual rate 3 percentage points higher than marketable
obligations of the Treasury having the same term to maturity as
the loan and issued during the most recently completed month,
as determined by the Secretary, or such higher rate as may be
necessary to ensure that the amounts of interest paid under
such loans exceed the sum of the costs (as such term is defined
in section 502 of the Federal Credit Reform Act of 1990 (2
U.S.C. 661a)) of such loans, the administrative costs involved
in carrying out a program under this title for such loans, and
any incidental effects on governmental receipts and outlays.
(4) Term.--The loan shall have a term to maturity of not less
than 5 years and not more than 10 years.
(e) Catastrophic Loans.--A loan under this subsection for a qualified
reinsurance program shall be subject to the following requirements:
(1) Preconditions.--The Secretary shall have determined that
an event has resulted in insured losses in a State with a
qualified reinsurance program and that such insured losses in
such State are in excess of 150 percent of the aggregate amount
of direct written premium for privately issued property and
casualty insurance, for risks located in that State, over the
calendar year preceding such event, in accordance with
regulations that the Secretary shall establish.
(2) Amount.--The principal amount of the loan made pursuant
to an event referred to in paragraph (1) may not exceed the
amount by which the insured losses sustained as a result of
such event exceed the ceiling coverage level for the qualified
reinsurance program.
(3) Rate of interest.--The loan shall bear interest at an
annual rate 0.20 percentage points higher than marketable
obligations of the Treasury having a term to maturity of not
less than 10 years and issued during the most recently
completed month, as determined by the Secretary, or such higher
rate as may be necessary to ensure that the amounts of interest
paid under such loans exceed the sum of the costs (as such term
is defined in section 502 of the Federal Credit Reform Act of
1990 (2 U.S.C. 661a)) of such loans, the administrative costs
involved in carrying out a program under this title for such
loans, and any incidental effects on governmental receipts and
outlays.
(4) Term.--The loan shall have a term to maturity of not less
than 10 years.
(f) Use of Funds.--Amounts from a loan under this section shall only
be used to provide reinsurance or retrocessional coverage to underlying
primary insurers or reinsurers for losses arising from all personal
real property or homeowners' lines of insurance, as defined in the
Uniform Property & Casualty Product Coding Matrix published and
maintained by the National Association of Insurance Commissioners. Such
amounts shall not be used for any other purpose.

SEC. 203. REPORTS AND AUDITS.

The Secretary shall submit a report to the President and the Congress
annually that identifies and describes any loans made under this title
during such year and any repayments during such year of loans made
under this title, and describes actions taken to ensure accountability
of loan funds. The Secretary shall provide for regular audits to be
conducted for each loan made under this title and shall make the
results of such audits publicly available.

SEC. 204. FUNDING.

(a) Program Fee.--
(1) In general.--The Secretary may establish and collect,
from qualified reinsurance programs that are precertified
pursuant to section 301(c), a reasonable fee, as may be
necessary to offset the expenses of the Secretary in connection
with carrying out the responsibilities of the Secretary under
this title, including--
(A) costs of developing, implementing, and carrying
out the program under this title; and
(B) costs of providing for precertification pursuant
to section 301(c) of State and regional reinsurance
programs as qualified reinsurance programs.
(2) Adjustment.--The Secretary may, from time to time, adjust
the fee under paragraph (1) as appropriate based on expenses of
the Secretary referred to in such paragraph.
(3) Use.--Any fees collected pursuant to this subsection
shall be credited as offsetting collections of the Department
of the Treasury and shall be available to the Secretary only
for expenses referred to in paragraph (1).
(b) Costs of Loans; Administrative Costs.--To the extent that amounts
of negative credit subsidy are received by the Secretary in any fiscal
year pursuant to loans made under this title, such amounts shall be
available for costs (as such term is defined in section 502 of the
Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) of such loans and
for costs of carrying out the program under this title for such loans.
(c) Full Taxpayer Repayment.--The Secretary shall require the full
repayment of all loans made under this title. If the Secretary
determines at any time that such full repayment will not made, or is
likely not to be made, the Secretary shall promptly submit a report to
the Congress explaining why such full repayment will not be made or is
likely not to be made.

TITLE III--GENERAL PROVISIONS

SEC. 301. QUALIFIED REINSURANCE PROGRAMS.

(a) In General.--For purposes of this Act only, a program shall be
considered to be a qualified reinsurance program if the program--
(1) is authorized by State law for the purposes described in
this section;
(2) is an entity in which the authorizing State maintains a
material, financial interest;
(3) provides reinsurance or retrocessional coverage to
underlying primary insurers or reinsurers for losses arising
from all personal residential lines of insurance, as defined in
the Uniform Property & Casualty Product Coding Matrix published
and maintained by the National Association of Insurance
Commissioners;
(4) has a governing body, a majority of whose members are
public officials;
(5) provides reinsurance or retrocessional coverage to
underlying primary insurers or reinsurers for losses in excess
of such amount that the Secretary has determined represents a
catastrophic event in that particular State;
(6) is authorized by a State that has in effect such laws,
regulations, or other requirements, as the Secretary shall by
regulation provide, that--
(A) ensure, to the extent that reinsurance coverage
made available under the qualified reinsurance program
results in any cost savings in providing insurance
coverage for risks in such State, such cost savings are
reflected in premium rates charged to consumers for
such coverage;
(B) require that any new construction, substantial
rehabilitation, and renovation insured or reinsured by
the program complies with applicable State or local
government building, fire, and safety codes;
(C) require State authorized insurance entities
within that State to establish an insurance rate
structure that takes into account measures to mitigate
insurance losses;
(D) require State authorized insurance and
reinsurance entities within that State to establish
rates at a level that annually produces expected
premiums that shall be sufficient to pay the expected
annualized cost of all claims, loss adjustment
expenses, and all administrative costs of reinsurance
coverage offered; and
(E) encourage State authorized insurance and
reinsurance entities within that State to establish
rates that do not involve cross-subsidization between
any separate property and casualty lines covered under
the State authorized insurance or reinsurance entity;
and
(7) complies with such additional organizational,
underwriting, and financial requirements as the Secretary
shall, by regulation, provide to carry out the purposes of this
Act.
(b) Transitional Mechanisms.--For the five-year period beginning on
the date of the enactment of this Act, in the case of a State that does
not have a qualified reinsurance program for the State, a State
residual insurance market entity for such State shall be considered to
be a qualified reinsurance program, but only if such State residual
insurance market entity was in existence before such date of enactment.
(c) Precertification.--The Secretary shall establish procedures and
standards for State and regional reinsurance programs and the State
residual insurance market entities described in section (b) to apply to
the Secretary at any time for certification (and recertification) as
qualified reinsurance programs.
(d) Reinsurance to Cover Exposure.--This section may not be construed
to limit or prevent any insurer from obtaining reinsurance coverage for
insured losses retained by insurers pursuant to this section, nor shall
the obtaining of such coverage affect the calculation of the amount of
any loan under this title.

SEC. 302. DEFINITIONS.

For purposes of this Act, the following definitions shall apply:
(1) Ceiling coverage level.--The term ``ceiling coverage
level'' means, with respect to a qualified reinsurance program,
the maximum liability, under law, that could be incurred at any
time by the qualified reinsurance program.
(2) Insured loss.--The term ``insured loss'' means any loss
insured by a qualified reinsurance program.
(3) Qualified reinsurance program.--The term ``qualified
reinsurance program'' means a State or regional program that
meets the requirements under section 301.
(4) Secretary.--The term ``Secretary'' means the Secretary of
the Treasury.
(5) State.--The term ``State'' includes the several States,
the District of Columbia, the Commonwealth of Puerto Rico,
Guam, the Commonwealth of the Northern Mariana Islands, the
United States Virgin Islands, and American Samoa.

SEC. 303. REGULATIONS.

The Secretary shall issue such regulations as may be necessary to
carry out this Act.

PURPOSE AND SUMMARY

H.R. 3355, the Homeowners' Defense Act of 2007, is intended
to provide Federal support for State-sponsored reinsurance
programs designed to help homeowners prepare for and recover
from damage caused by natural catastrophes, to encourage
mitigation of such damage and to promote the transfer of
insured natural catastrophe risk into the capital markets.
H.R. 3355 has two main components designed to achieve these
goals. First, Title I of the legislation establishes a
voluntary Federal/State consortium to encourage and facilitate
the ceding of risk from qualified reinsurance programs and
State residual insurance market entities into the private
markets, particularly the catastrophe bond markets. Second,
Title II of the legislation creates a Federal loan program to
provide a reliable source of post-event financing for qualified
reinsurance programs.
Two types of loans are available through the Federal loan
program created by Title II of the legislation. First, Title II
provides liquidity loans to qualified reinsurance programs that
have capital liquidity shortages, in amounts not exceeding the
programs' ceiling coverage levels. Title II also makes
available catastrophic loans to cover losses in excess of each
State program's total liabilities. In order to receive either
type of loan available under Title II, the Treasury Secretary
must verify that the State program can meet its repayment
obligations under the loan.

BACKGROUND AND NEED FOR LEGISLATION

The increasing costs of natural catastrophes have
significantly stressed insurance markets. Insurance markets
tend to respond adversely to mega-catastrophes. Mega-
catastrophes can reduce insurers' surplus and cause them to
remodel their analysis of risk and pricing, sometimes resulting
in reduced availability and rates increased to match the
increased perception of risk. This occurred, for example,
following Hurricane Andrew in 1992 and the Northridge
earthquake in 1994.
The recent spate of natural disasters has caused insurance
companies to reexamine their exposure and business models for
insuring natural disasters. This process has resulted in
insurers and reinsurers pulling out of or reducing their
portfolios in certain areas of the country. This resulting
insurance availability loss has, in part, caused homeowners
insurance rates to spike by up to 100 percent to over 600
percent in certain higher-risk areas.
The programs created in Titles I and II of H.R. 3355 work
together to achieve the legislation's stated purposes. Title I
establishes the National Catastrophe Risk Consortium, an
organization that States can, but need not, join for the
purposes of transferring catastrophe risk into the private
capital markets. The desired risk transfer would be achieved
through the issuance of risk-linked securities or through the
coordination of reinsurance contracts. The Consortium is
designed to function as a conduit, so that at no time would
risk transfer either to or from the Federal Government.
Likewise, the Consortium is prohibited from incurring debt.
The Consortium is to be governed by a board comprised of up
to three Federal designees and one representative from each
participating State program. All States' qualified reinsurance
programs are eligible to join. Much of the Consortium's needs
for risk modeling, financial consulting, and relations with the
capital markets can be arranged for on a contract basis rather
than provided by permanent staff.
The Consortium is intended to facilitate State efforts to
group catastrophic risk for resale. The Consortium staff will
work in coordination with participating States' qualified
reinsurance programs to catalogue inventories of catastrophic
risk. Catastrophe bond underwriters and other market
participants will be able to access this database to structure
bonds or reinsurance contracts and treaties. In addition, the
Consortium will aid participating States' qualified reinsurance
programs in transferring catastrophic risk, such as by issuance
of catastrophe bonds or the coordination reinsurance agreement,
without actually taking possession of any bond proceeds, coupon
payments or underlying risk.
The Consortium will aggregate and maintain relevant
statistics that can assist market participants in the
development of industry standards. Such standards could
include, but are not limited to, the terms of bond offerings,
the nature of triggers used, and the definitions of risks.
Standardization is expected to contribute to the efficiency of
the catastrophe bond market.
Title II of the legislation creates the National Homeowners
Insurance Stabilization Program under which the Treasury
Secretary can extend Federal loans to qualified reinsurance
programs, which the Secretary has previously certified as
qualified reinsurance programs, in states where natural
disasters have occurred. Specifically, Title II makes two types
of loans available: liquidity loans and catastrophic loans.
Liquidity loans can be extended to States' qualified
reinsurance programs, which the Secretary has previously
certified as qualified, that have insured losses and a capital
liquidity shortage following a natural catastrophe. The amount
of the loan cannot exceed a State qualified reinsurance
program's ceiling coverage level. As reported, H.R. 3355's
liquidity loans have an interest rate set at three percentage
points higher than marketable obligations of the Treasury
having the same term to maturity and have a term of maturity of
between five and ten years. The interest rate and limited loan
duration are intended to encourage sound financial management
on the part of the States' qualified reinsurance programs by
making the loans attractive only as a last option.
In the event insured losses in a state with a qualified
reinsurance program exceed 150 percent of that state's direct
written premium for privately issued property and casualty
insurance, the Treasury Secretary can extend catastrophic loans
to qualified reinsurance programs that the Secretary has
previously certified as qualified reinsurance programs As
reported, H.R. 3355's catastrophic loans have an annual
interest rate 0.20 percentage points higher than marketable
obligations of the Treasury and have a term to maturity of no
less than ten years.
As a transitional mechanism, during the first five years
after enactment, states without qualified reinsurance programs
would be eligible to participate in the National Homeowners
Insurance Stabilization Program through their residual
insurance market entities (e.g., State FAIR and windstorm
plans) until they create qualified reinsurance programs,
provided the State residual insurance market entity is in place
before enactment of this legislation. State residual insurance
market entities remain eligible to participate in Title I's
National Catastrophe Risk Consortium at anytime following
enactment.
Title III of H.R. 3355 includes general provisions,
regarding eligibility for and operations of the programs
created in Titles I and II, intended to ensure responsible
insurance and reinsurance underwriting. Most importantly, Title
III defines, for the purposes of this legislation, a
``qualified reinsurance program'' as a State-authorized entity
that provides reinsurance or retrocessional coverage to
underlying primary insurers or reinsurers for losses arising
from all personal residential lines of insurance. The
definition of qualified reinsurance program also mandates that
participating States have enacted statutes or regulations that:
(i) ensure any cost savings realized through State insurance or
reinsurance programs pass through to policyholders; (ii)
require compliance with applicable building codes; (iii)
require an insurance rate structure that takes into account
measures to mitigate losses; (iv) require State insurance and
reinsurance entities to establish risk-based rates; and (v)
encourage State insurance and reinsurance entities to establish
rates that do not involve cross-subsidization between various
insurance lines of coverage.

HEARINGS

The Subcommittee on Housing and Community Opportunity and
the Subcommittee on Capital Markets, Insurance, and Government
Sponsored Enterprises held a joint legislative hearing on H.R.
3355 on September 6, 2007. The following witnesses testified:
The Honorable Phillip Swagel, Assistant Secretary for Economic
Policy, U.S. Department of the Treasury; The Honorable J.P.
Schmidt, Insurance Commissioner, State of Hawaii, on behalf of
the National Association of Insurance Commissioners; The
Honorable Matthew Patrick, Massachusetts House of
Representatives; The Honorable Tom Evans, Chairman, Florida
Coalition for Preservation; Mr. Danyal Ozizmir, Head of Asset
Back Securities-Insurance Linked Securities, Swiss Re Financial
Products Corporation; Mr. John Seo, Co-founder and Managing
Member, Fermat Capital Management; Mr. Franklin Nutter,
President, The Reinsurance Association of America; Mr. Vince
Malta, Malta & Co., Inc., on behalf of the National Association
of Realtors; Mr. Robert Joyce, Chairman and Chief Executive
Officer, The Westfield Group, on behalf of the Property
Casualty Insurance Association of America; Mr. Steve Spiro,
Spiro Risk Management, Inc., on behalf of the Independent
Insurance Agents of America; and Mr. John D. Echeverria,
Executive Director, Georgetown Environmental Law & Policy
Institute, Georgetown University Law Center.
On March 27, 2007, the Subcommittee on Housing and
Community Opportunity held a hearing entitled ``Perspectives on
Natural Disaster Insurance'' at which witnesses testified
regarding the general need to provide financial security
against the natural disasters plaguing our nation. The
following witnesses testified: The Honorable Ron Klein; The
Honorable Tim Mahoney; The Honorable Ginny Brown-Waite; The
Honorable Gene Taylor; Commissioner Kevin M. McCarty, Office of
Insurance Regulation, State of Florida; Mr. Andrew Valdivia,
President, White & Company Insurance Inc.; Mr. Malcolm N.
Bennett, President, International Realty and Investments; Mr.
Robert L. Porter, Executive Director, ProtectingAmerica.org;
Mr. Gary Thomas, President's Liaison to the Public and Federal
Issues Group, National Association of Realtors; Gov. Marc
Racicot, President, American Insurance Association; Mr.
Franklin Nutter, President, Reinsurance Association of America;
and Ms. Ann Spragens, Senior Vice President, Secretary and
General Counsel, Property Casualty Insurers Association of
America.

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on
September 25, 2007, and ordered H.R. 3355, the Homeowners'
Defense Act of 2007, as amended, reported with a favorable
recommendation by a record vote of 36 yeas and 27 nays.

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Frank to report the bill, as amended, to the
House with a favorable recommendation was agreed to by a record
vote of 36 yeas and 27 nays (Record vote FC-71). The names of
Members voting for and against follow:

----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank........................ X ....... ........ Mr. Bachus......... ....... X ........
Mr. Kanjorski.................... X ....... ........ Mr. Baker.......... ....... X ........
Ms. Waters....................... X ....... ........ Ms. Pryce (OH)..... ....... X ........
Mrs. Maloney..................... X ....... ........ Mr. Castle......... ....... X ........
Mr. Gutierrez.................... X ....... ........ Mr. King (NY)...... ....... X ........
Ms. Velazquez.................... ........ ....... ........ Mr. Royce.......... ....... X ........
Mr. Watt......................... X ....... ........ Mr. Lucas.......... ....... X ........
Mr. Ackerman..................... X ....... ........ Mr. Paul........... ....... X ........
Ms. Carson....................... ........ ....... ........ Mr. LaTourette..... ....... X ........
Mr. Sherman...................... X ....... ........ Mr. Manzullo....... ....... X ........
Mr. Meeks........................ ........ ....... ........ Mr. Jones.......... X ........ ........
Mr. Moore (KS)................... X ....... ........ Mrs. Biggert....... ....... X ........
Mr. Capuano...................... X ....... ........ Mr. Shays.......... ....... X ........
Mr. Hinojosa..................... ........ ....... ........ Mr. Miller (CA).... ....... X ........
Mr. Clay......................... X ....... ........ Mrs. Capito........ ....... X ........
Mrs. McCarthy.................... X ....... ........ Mr. Feeney......... X ........ ........
Mr. Baca......................... X ....... ........ Mr. Hensarling..... ....... X ........
Mr. Lynch........................ X ....... ........ Mr. Garrett (NJ)... ....... X ........
Mr. Miller (NC).................. X ....... ........ Ms. Brown-Waite.... X ........ ........
Mr. Scott........................ X ....... ........ Mr. Barrett (SC)... ....... X ........
Mr. Green........................ X ....... ........ Mr. Gerlach........ ....... X ........
Mr. Cleaver...................... ........ ....... ........ Mr. Pearce......... ....... X ........
Ms. Bean......................... X ....... ........ Mr. Neugebauer..... ....... X ........
Ms. Moore (WI)................... X ....... ........ Mr. Price (GA)..... ....... X ........
Mr. Davis (TN)................... X ....... ........ Mr. Davis (KY)..... ....... X ........
Mr. Sires........................ X ....... ........ Mr. McHenry........ ....... X ........
Mr. Hodes........................ X ....... ........ Mr. Campbell....... X ........ ........
Mr. Ellison...................... X ....... ........ Mr. Putnam......... ....... ........ ........
Mr. Klein........................ X ....... ........ Mrs. Bachmann...... ....... X ........
Mr. Mahoney (FL)................. X ....... ........ Mr. Roskam......... ....... X ........
Mr. Wilson....................... X ....... ........ Mr. Marchant....... ....... X ........
Mr. Perlmutter................... X ....... ........ Mr. McCotter....... ....... X ........
Mr. Murphy....................... X
Mr. Donnelly..................... X
Mr. Wexler....................... X
Mr. Marshall..................... X
Mr. Boren........................ X
----------------------------------------------------------------------------------------------------------------

The following amendments were disposed of by record votes.
The names of Members voting for and against follow:
An amendment in the nature of a substitute by Mr. Shays,
No. 1c, establishing a Commission on Natural Catastrophe Risk
management, was not agreed to by a record vote of 22 yeas and
32 nays (Record vote FC-67):

----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank....................... ....... X ........ Mr. Bachus......... ........ ........ ........
Mr. Kanjorski................... ....... X ........ Mr. Baker.......... X ........ ........
Ms. Waters...................... ....... X ........ Ms. Pryce (OH)..... X ........ ........
Mrs. Maloney.................... ....... X ........ Mr. Castle......... ........ ........ ........
Mr. Gutierrez................... ....... X ........ Mr. King (NY)...... X ........ ........
Ms. Velazquez................... ....... ........ ........ Mr. Royce.......... X ........ ........
Mr. Watt........................ ....... X ........ Mr. Lucas.......... X ........ ........
Mr. Ackerman.................... ....... X ........ Mr. Paul........... X ........ ........
Ms. Carson...................... ....... ........ ........ Mr. LaTourette..... ........ ........ ........
Mr. Sherman..................... ....... ........ ........ Mr. Manzullo....... X ........ ........
Mr. Meeks....................... ....... ........ ........ Mr. Jones.......... ........ X ........
Mr. Moore (KS).................. ....... X ........ Mrs. Biggert....... X ........ ........
Mr. Capuano..................... ....... X ........ Mr. Shays.......... X ........ ........
Mr. Hinojosa.................... ....... ........ ........ Mr. Miller (CA).... X ........ ........
Mr. Clay........................ ....... X ........ Mrs. Capito........ X ........ ........
Mrs. McCarthy................... ....... X ........ Mr. Feeney......... ........ X ........
Mr. Baca........................ ....... X ........ Mr. Hensarling..... X ........ ........
Mr. Lynch....................... ....... X ........ Mr. Garrett (NJ)... X ........ ........
Mr. Miller (NC)................. ....... X ........ Ms. Brown-Waite.... ........ X ........
Mr. Scott....................... ....... X ........ Mr. Barrett (SC)... X ........ ........
Mr. Green....................... ....... X ........ Mr. Gerlach........ X ........ ........
Mr. Cleaver..................... ....... ........ ........ Mr. Pearce......... X ........ ........
Ms. Bean........................ ....... X ........ Mr. Neugebauer..... X ........ ........
Ms. Moore (WI).................. ....... ........ ........ Mr. Price (GA)..... X ........ ........
Mr. Davis (TN).................. ....... X ........ Mr. Davis (KY)..... X ........ ........
Mr. Sires....................... ....... ........ ........ Mr. McHenry........ X ........ ........
Mr. Hodes....................... ....... X ........ Mr. Campbell....... ........ X ........
Mr. Ellison..................... ....... X ........ Mr. Putnam......... ........ ........ ........
Mr. Klein....................... ....... X ........ Mrs. Bachmann...... ........ ........ ........
Mr. Mahoney (FL)................ ....... X ........ Mr. Roskam......... X ........ ........
Mr. Wilson...................... ....... X ........ Mr. Marchant....... ........ ........ ........
Mr. Perlmutter.................. ....... X ........ Mr. McCotter....... X ........ ........
Mr. Murphy...................... ....... X ........
Mr. Donnelly.................... ....... X ........
Mr. Wexler...................... ....... X ........
Mr. Marshall.................... ....... ........ ........ ...................
Mr. Boren....................... ....... X ........
----------------------------------------------------------------------------------------------------------------

An amendment by Mr. Price (GA), No. 1f, authorizing the
Secretary of the Treasury to adjust the trigger for loan
eligibility, was not agreed to by a record vote of 27 yeas and
32 nays (Record vote FC-68):

----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank....................... ....... X ........ Mr. Bachus......... X ........ ........
Mr. Kanjorski................... ....... X ........ Mr. Baker.......... X ........ ........
Ms. Waters...................... ....... X ........ Ms. Pryce (OH)..... X ........ ........
Mrs. Maloney.................... ....... X ........ Mr. Castle......... ........ ........ ........
Mr. Gutierrez................... ....... X ........ Mr. King (NY)...... X ........ ........
Ms. Velazquez................... ....... ........ ........ Mr. Royce.......... X ........ ........
Mr. Watt........................ ....... X ........ Mr. Lucas.......... X ........ ........
Mr. Ackerman.................... ....... X ........ Mr. Paul........... X ........ ........
Ms. Carson...................... ....... ........ ........ Mr. LaTourette..... X ........ ........
Mr. Sherman..................... ....... X ........ Mr. Manzullo....... X ........ ........
Mr. Meeks....................... ....... ........ ........ Mr. Jones.......... ........ X ........
Mr. Moore (KS).................. ....... X ........ Mrs. Biggert....... X ........ ........
Mr. Capuano..................... ....... X ........ Mr. Shays.......... X ........ ........
Mr. Hinojosa.................... ....... ........ ........ Mr. Miller (CA).... X ........ ........
Mr. Clay........................ ....... X ........ Mrs. Capito........ X ........ ........
Mrs. McCarthy................... ....... X ........ Mr. Feeney......... X ........ ........
Mr. Baca........................ ....... X ........ Mr. Hensarling..... X ........ ........
Mr. Lynch....................... ....... X ........ Mr. Garrett (NJ)... X ........ ........
Mr. Miller (NC)................. ....... X ........ Ms. Brown-Waite.... ........ X ........
Mr. Scott....................... ....... X ........ Mr. Barrett (SC)... X ........ ........
Mr. Green....................... ....... X ........ Mr. Gerlach........ X ........ ........
Mr. Cleaver..................... ....... ........ ........ Mr. Pearce......... X ........ ........
Ms. Bean........................ ....... X ........ Mr. Neugebauer..... X ........ ........
Ms. Moore (WI).................. ....... ........ ........ Mr. Price (GA)..... X ........ ........
Mr. Davis (TN).................. ....... X ........ Mr. Davis (KY)..... X ........ ........
Mr. Sires....................... ....... ........ ........ Mr. McHenry........ X ........ ........
Mr. Hodes....................... ....... X ........ Mr. Campbell....... X ........ ........
Mr. Ellison..................... ....... X ........ Mr. Putnam......... ........ ........ ........
Mr. Klein....................... ....... X ........ Mrs. Bachmann...... X ........ ........
Mr. Mahoney (FL)................ ....... X ........ Mr. Roskam......... X ........ ........
Mr. Wilson...................... ....... X ........ Mr. Marchant....... ........ ........ ........
Mr. Perlmutter.................. ....... X ........ Mr. McCotter....... X ........ ........
Mr. Murphy...................... ....... X ........
Mr. Donnelly.................... ....... X ........
Mr. Wexler...................... ....... X ........
Mr. Marshall.................... ....... X ........
Mr. Boren....................... ....... X ........
----------------------------------------------------------------------------------------------------------------

An amendment by Mr. Price (GA), No. 1g, adding an
additional requirement to the definition of ``qualified
reinsurance program'', was not agreed to by a record vote of 31
yeas and 32 nays (Record vote FC-69):

----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank.......................... ....... X ........ Mr. Bachus............ X ....... ........
Mr. Kanjorski...................... ....... X ........ Mr. Baker............. X ....... ........
Ms. Waters......................... ....... X ........ Ms. Pryce (OH)........ X ....... ........
Mrs. Maloney....................... ....... X ........ Mr. Castle............ X ....... ........
Mr. Gutierrez...................... ....... X ........ Mr. King (NY)......... X ....... ........
Ms. Velazquez...................... ....... ........ ........ Mr. Royce............. X ....... ........
Mr. Watt........................... ....... X ........ Mr. Lucas............. X ....... ........
Mr. Ackerman....................... ....... X ........ Mr. Paul.............. X ....... ........
Ms. Carson......................... ....... ........ ........ Mr. LaTourette........ X ....... ........
Mr. Sherman........................ ....... X ........ Mr. Manzullo.......... X ....... ........
Mr. Meeks.......................... ....... ........ ........ Mr. Jones............. X ....... ........
Mr. Moore (KS)..................... ....... X ........ Mrs. Biggert.......... X .......
Mr. Capuano........................ ....... X ........ Mr. Shays............. X ....... ........
Mr. Hinojosa....................... ....... ........ ........ Mr. Miller (CA)....... X ....... ........
Mr. Clay........................... ....... X ........ Mrs. Capito........... X ....... ........
Mrs. McCarthy...................... ....... X ........ Mr. Feeney............ X .......
Mr. Baca........................... ....... X ........ Mr. Hensarling........ X ....... ........
Mr. Lynch.......................... ....... X ........ Mr. Garrett (NJ)...... X ....... ........
Mr. Miller (NC).................... ....... X ........ Ms. Brown-Waite....... X ....... ........
Mr. Scott.......................... ....... X ........ Mr. Barrett (SC)...... X ....... ........
Mr. Green.......................... ....... X ........ Mr. Gerlach........... X ....... ........
Mr. Cleaver........................ ....... ........ ........ Mr. Pearce............ X ....... ........
Ms. Bean........................... ....... X ........ Mr. Neugebauer........ X ....... ........
Ms. Moore (WI)..................... ....... X ........ Mr. Price (GA)........ X ....... ........
Mr. Davis (TN)..................... ....... X ........ Mr. Davis (KY)........ X ....... ........
Mr. Sires.......................... ....... X ........ Mr. McHenry........... X ....... ........
Mr. Hodes.......................... ....... X ........ Mr. Campbell.......... X ....... ........
Mr. Ellison........................ ....... X ........ Mr. Putnam............ ... ....... ........
Mr. Klein.......................... ....... X ........ Mrs. Bachmann......... X ....... ........
Mr. Mahoney (FL)................... ....... X ........ Mr. Roskam............ X ....... ........
Mr. Wilson......................... ....... X ........ Mr. Marchant.......... X ....... ........
Mr. Perlmutter..................... ....... X ........ Mr. McCotter.......... X ....... ........
Mr. Murphy......................... ....... X ........
Mr. Donnelly....................... ....... X ........
Mr. Wexler......................... ....... X ........
Mr. Marshall....................... ....... X ........
Mr. Boren.......................... ....... X ........
----------------------------------------------------------------------------------------------------------------

An amendment by Mr. Price (GA), No. 1h, limiting federal
loans to only catastrophic events, was not agreed to by a
record vote of 29 yeas and 34 nays (Record vote FC-70):

----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank.......................... ....... X ........ Mr. Bachus............ X ....... ........
Mr. Kanjorski...................... ....... X ........ Mr. Baker............. X ....... ........
Ms. Waters......................... ....... X ........ Ms. Pryce (OH)........ X ....... ........
Mrs. Maloney....................... ....... X ........ Mr. Castle............ X ....... ........
Mr. Gutierrez...................... ....... X ........ Mr. King (NY)......... X ....... ........
Ms. Velazquez...................... ....... ........ ........ Mr. Royce............. X ....... ........
Mr. Watt........................... ....... X ........ Mr. Lucas............. X ....... ........
Mr. Ackerman....................... ....... X ........ Mr. Paul.............. X ....... ........
Ms. Carson......................... ....... ........ ........ Mr. LaTourette........ X ....... ........
Mr. Sherman........................ ....... X ........ Mr. Manzullo.......... X ....... ........
Mr. Meeks.......................... ....... ........ ........ Mr. Jones............. ... X ........
Mr. Moore (KS)..................... ....... X ........ Mrs. Biggert.......... X .......
Mr. Capuano........................ ....... X ........ Mr. Shays............. X ....... ........
Mr. Hinojosa....................... ....... ........ ........ Mr. Miller (CA)....... X ....... ........
Mr. Clay........................... ....... X ........ Mrs. Capito........... X ....... ........
Mrs. McCarthy...................... ....... X ........ Mr. Feeney............ X .......
Mr. Baca........................... ....... X ........ Mr. Hensarling........ X ....... ........
Mr. Lynch.......................... ....... X ........ Mr. Garrett (NJ)...... X ....... ........
Mr. Miller (NC).................... ....... X ........ Ms. Brown-Waite....... X ....... ........
Mr. Scott.......................... ....... X ........ Mr. Barrett (SC)...... X ....... ........
Mr. Green.......................... ....... X ........ Mr. Gerlach........... X ....... ........
Mr. Cleaver........................ ....... ........ ........ Mr. Pearce............ X ....... ........
Ms. Bean........................... ....... X ........ Mr. Neugebauer........ X ....... ........
Ms. Moore (WI)..................... ....... X ........ Mr. Price (GA)........ X ....... ........
Mr. Davis (TN)..................... ....... X ........ Mr. Davis (KY)........ X ....... ........
Mr. Sires.......................... ....... X ........ Mr. McHenry........... X ....... ........
Mr. Hodes.......................... ....... X ........ Mr. Campbell.......... ... X ........
Mr. Ellison........................ ....... X ........ Mr. Putnam............ ... ....... ........
Mr. Klein.......................... ....... X ........ Mrs. Bachmann......... X ....... ........
Mr. Mahoney (FL)................... ....... X ........ Mr. Roskam............ X ....... ........
Mr. Wilson......................... ....... X ........ Mr. Marchant.......... X ....... ........
Mr. Perlmutter..................... ....... X ........ Mr. McCotter.......... X ....... ........
Mr. Murphy......................... ....... X ........
Mr. Donnelly....................... ....... X ........
Mr. Wexler......................... ....... X ........
Mr. Marshall....................... ....... X ........
Mr. Boren.......................... ....... X ........
----------------------------------------------------------------------------------------------------------------

The following other amendments were also considered by the
Committee:
An amendment by Mr. Frank, No. 1, a manager's amendment in
the nature of a substitute, as amended, was agreed to by a
voice vote.
An amendment by Ms. Brown-Waite, No. 1a, providing
reinsurance coverage for state natural catastrophe insurance
programs, was offered and withdrawn.
An amendment by Mr. Murphy, No. 1b, inserting ``requires''
regarding qualified reinsurance programs, was agreed to by a
voice vote.
An amendment by Mr. Feeney, No. 1d, regarding direct
assistance to homeowners, was offered and withdrawn.
An amendment by Mr. Bachus, No. 1e, adding a precondition
for qualified reinsurance programs, was offered and withdrawn.
An amendment by Mr. Campbell, No. 1i, including commercial
property, was offered and withdrawn.

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held hearings and
made findings that are reflected in this report.

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
H.R. 3355 is intended to provide Federal support for State-
sponsored reinsurance programs designed to help homeowners
prepare for and recover from damage caused by natural
catastrophes, to encourage mitigation of such damage and to
promote the transfer of insured natural catastrophe risk into
the capital markets.

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:

October 30, 2007.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3355, the
Homeowners' Defense Act of 2007.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Daniel
Hoople.
Sincerely,
Peter R. Orszag.
Enclosure.

H.R. 3355--Homeowners' Defense Act of 2007

Summary: H.R. 3355 would authorize the appropriation of
$120 million over the 2008-2013 period to establish a National
Catastrophe Risk Consortium to help coordinate the availability
of reinsurance contracts between state reinsurance entities and
the private market. The consortium also would act as an
information repository for states on the risk of natural
disasters and research on the standardization of risk-linked
securities (for example, catastrophe bonds). Assuming the
appropriation of the specified amounts, CBO estimates that
implementing this provision would cost $75 million over the
2008-2012 period.
The bill also would establish two new federal direct loan
programs within the Department of the Treasury for state
reinsurance programs facing certain levels of insured losses
following a natural disaster. Loans could be made only if a
reinsurer could not access capital in the private market and
repayment was secured by the full faith and credit of the
state. Treasury would develop procedures for state reinsurance
programs to prequalify for loans, including the assessment of
fees to cover the cost of administering the program. CBO
expects that such loans would be made very rarely and would
involve a minimal subsidy cost under the terms specified in the
legislation. As such, CBO estimates that loans made under the
bill would have an insignificant cost over the next five years.
Enacting H.R. 3355 would not affect direct spending or
revenues.
This bill contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of this legislation is shown in the following
table. The costs of this legislation fall within budget
function 450 (community and regional development).

------------------------------------------------------------------------
By fiscal year, in millions of
dollars--
---------------------------------------
2008 2009 2010 2011 2012
------------------------------------------------------------------------
Authorization Level............. 20 20 20 20 20
Estimated Outlays............... 3 12 20 20 20
------------------------------------------------------------------------
Note: H.R. 3355 also would authorize the appropriation of $20 million in
fiscal year 2013.

Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted in early fiscal year 2008 and that the
necessary amounts will be appropriated for each fiscal year.

National Catastrophe Risk Consortium

H.R. 3355 would authorize the appropriation of $20 million
for each of fiscal years 2008 through 2013 to establish the
National Catastrophe Risk Consortium. The consortium would be a
federal entity managed by a board of directors made up of
designees from the Departments of the Treasury, Commerce, and
Homeland Security, and members from each participating state.
Responsibilities of the Consortium would include: encouraging
and facilitating different avenues for state insurers to enter
into reinsurance agreements with the private market, conducting
research and analysis into the standardization of risk-linked
securities, and gathering insurance information. Assuming the
appropriation of the specified amounts, CBO estimates that
implementing this provision would cost $3 million in 2008 and
$75 million over the 2008-2012 period for staff and research
expenses.

Liquidity and catastrophe loans for state reinsurance programs

H.R. 3355 would establish two new direct loan programs
within the Department of the Treasury for state reinsurance
programs facing a certain level of insured losses following a
natural disaster. Reinsurance programs insure primary insurers
or other reinsurers against losses in excess of amounts
specified by contract or law. Reinsurance programs eligible for
the new loan programs created under the bill would only be
those in which the authorizing state maintained a financial
interest. Examples of such reinsurance programs include the
Florida Hurricane Catastrophe Fund (FHCF) and the California
Earthquake Authority. In cases where a state does not have a
reinsurance program that meets the requirements for a loan
under the bill, a state residual insurer (for example, wind
pool programs) would be eligible to apply during the five-year
period following enactment.
Procedures to Establish Loan Eligibility. H.R. 3355 would
direct the Secretary of the Treasury to develop procedures for
reinsurance programs to establish loan eligibility prior to a
natural disaster. At a minimum, insurance entities covered by
the reinsurer would be required to establish rate structures
sufficient to cover expected annualized costs and ensure that
any new construction or substantial renovation of insured
properties comply with applicable state and local building
codes. As a part of the precertification process, the Secretary
would assess a fee on state reinsurance programs to cover the
costs of administering the loan program. Those fees would be
credited in the budget as an offsetting collection and would be
available upon subsequent appropriation of a loan subsidy.
Based on information about the characteristics of existing
state reinsurance programs and on information from the
Treasury, CBO expects that most state reinsurance programs
would meet the eligibility requirements set forth under the
bill and thus would be eligible to receive loans. In addition,
other qualified reinsurance programs may be established in the
future that also would be eligible to receive loans.
Liquidity Loans. Under H.R. 3355, a qualified reinsurance
program would be eligible to receive a liquidity loan if the
program demonstrates it is facing a liquidity shortage and is
not able to access capital at a reasonable rate in the private
market. The principal of such loans could not exceed the
ceiling coverage level--the maximum amount of liability the
program could incur under law. In addition, the full faith and
credit of the state in which the reinsurance program is
authorized would be required. Loans would be made at a rate of
not less than 3 percentage points above the applicable Treasury
rate and for a term of between five and ten years.
Based on information from the state of Florida, CBO expects
that those loans would most likely be used to address short-
term liquidity shortages and would be repaid once adequate
capital became available through established reinsurance
agreements or through the private market. In cases where a
liquidity loan is held to term (which CBO expects would be
unlikely to occur because of the high interest rate of the
loan), CBO estimates that those loans would have no significant
cost to the federal government. As of June 2007, rating
agencies like Standard and Poor's have not issued a credit
rating below ``A'' for new general obligation bonds issued by a
state. Based on historical default rates and the minimum terms
specified in the bill, CBO estimates that the default risk
associated with a state's general obligation bond rating would
have to increase significantly before such a loan would be
estimated to have more than a negligible subsidy cost. While
the default risk of loans backed by the full faith and credit
of a state would likely increase following a disaster, CBO
expects that this increase would not be significant. (Following
Hurricane Katrina, for example, Standard and Poor's announced
it would adjust a state's credit rating for the first time as a
result of a natural disaster by lowering Louisiana's rating
from an A+ to an A.) As such, CBO estimates that any liquidity
loan made under the bill would have an insignificant cost over
the next five years.
Catastrophe Loans. Under the bill, a qualified reinsurance
program would be eligible to receive a catastrophe loan
following a disaster if insured losses exceeded 150 percent of
the aggregate amount of premiums assessed (whether collected or
not) for private property and casualty insurance issued in the
state over the previous 12-month period. The principal of such
a loan could not exceed the difference between the total
insured loss and the program's ceiling coverage level, and
repayment would be afforded the full faith and credit of the
state. Loans would be made at a rate of not less than 20 basis
points above the applicable Treasury rate and for a term of not
less than 10 years.
Based on information from the states, CBO expects that few,
if any, reinsurance programs would apply for a catastrophe loan
following a disaster. State insurance commissions and rating
agencies often require that primary insurers are able to cover
at least a 100-year event to maintain their credit rating. As
such, not only would losses exceeding the ceiling coverage
level be outside the responsibility of the reinsurer, they
likely would be covered through existing reinsurance agreements
between the primary insurer and the private market.
For example, as a result of Hurricane Katrina, the Gulf
Coast faced insured losses of over $40 billion. Such losses
well exceeded the minimum eligibility threshold for a
catastrophe loan under the bill. (Based on the aggregate amount
of direct written premium for private property and casualty
insurance, CBO estimates that the threshold probably would have
been around $12 billion for Louisiana in 2005.) However, CBO
expects that there would have been little demand for a
catastrophe loan following Katrina because a state reinsurance
program (if one had existed) would not have been responsible
for losses above its ceiling coverage level. Furthermore, such
losses would have been covered by existing reinsurance
agreements between primary insurers and the private market. For
those reasons, CBO estimates that implementing this provision
would have no cost over the next five years.
Intergovernmental and private-sector impact: H.R. 3355
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
Estimate prepared by: Federal Costs: Daniel Hoople; Impact
on State, Local, and Tribal Governments: Melissa Merrell;
Impact on the Private Sector: MarDestinee C. Perez.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) and clause 3 (relating to
the power to regulate interstate commerce).

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.

EARMARK IDENTIFICATION

H.R. 3355 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Sec. 1.--Short title

This section establishes the short title of the bill, the
``Homeowners' Defense Act of 2007.''

Sec. 2.--Findings and purpose

This section sets findings that support the creation of a
National Catastrophe Risk Consortium and the National
Homeowners Insurance Stabilization Program.

Title I--National Catastrophe Risk Consortium

Sec. 101.--Establishment; status; principal office; membership

This Title establishes a National Catastrophe Risk
Consortium that would consist of qualified reinsurance programs
that join on a voluntary basis. The Consortium is not a part of
the Federal Government.

Sec. 102.--Functions

The Consortium will maintain an inventory of catastrophe
risk obligations held by participating States and will issue
securities and other financial instruments linked to
catastrophe risks in the capital markets. Furthermore, the
Consortium can coordinate reinsurance contracts with private
parties.
The Consortium will also act as a database of State
catastrophe risk information that can be accessed by private
participants and perform research and analysis that encourages
standardization of the risk-linked securities market.
The Consortium will also perform any other functions
necessary to aid in catastrophe risk transfer and will submit a
yearly report to Congress highlighting and explaining its
activities.

Sec. 103.--Powers

The Consortium can enter into contracts as necessary to
carry out its functions. The Consortium is given any other
powers that may be necessary for carrying out this Act. It will
not have the power to issue debt or assume risk.

Sec. 104.--Non-profit entity; conflicts of interest; audits

The Consortium is a non-profit organization with no capital
stock. The revenue, earnings, and all other income accrued to
the Consortium shall only be used to carry out the provisions
of this Act and not to enrich the Consortium personnel.
Furthermore, to prevent conflicts of interest, no director,
officer, or employee of the Consortium shall participate in the
deliberation upon any question affecting his or her personal
interests. Finally, to ensure continued integrity, the
Consortium's financial statements shall be audited annually by
independent certified public accountants. The audit shall be
included in the Consortium's annual report to Congress.

Sec. 105.--Management

The Consortium shall be managed by a Board of Directors
consisting of not fewer than three members. The Secretary of
the Treasury or his designee shall serve as the chairperson.
Designees of the Secretaries of Homeland Security and Commerce
shall also serve as board members but only during such times
there are fewer than two states participating in the
Consortium. Furthermore, the Board has the authority to appoint
an Executive Director.
Only Board members who are not Federal employees will be
eligible for compensation.

Sec. 106.--Staff; experts and consultants

The Board of Directors may appoint and terminate staff and
set their compensation as is deemed appropriate for the
purposes of the Consortium. The Board also has the power to
contract expert consultants as it deems appropriate.

Sec. 107.--Federal liability

The Federal Government will bear no liabilities from the
actions of the Consortium.

Sec. 108.--Authorization of appropriations

The Consortium is authorized for five years at $20 million
per year.

Title II--National Homeowners' Insurance Stabilization Program

Sec. 201.--Establishment

The Secretary shall carry out a program to make liquidity
loans and catastrophic loans to qualified reinsurance programs.

Sec. 202.--Liquidity loans and catastrophic loans for state and
regional reinsurance programs

To the extent that a qualified reinsurance program cannot
access capital in the private market, a qualified program can
be eligible to receive two types of Federal loans. The program
must file a report with the Treasury Secretary explaining how
it will repay the loan and the Secretary must find that--based
on the report--the program will be able to meet the loan terms.
The Secretary can extend liquidity loans to a qualified
reinsurance program after the Secretary determines that the
qualified reinsurance program has a funding shortage and cannot
borrow in the capital markets. The amount of the loan cannot
exceed the ceiling coverage level for the qualified reinsurance
program. The liquidity loan has a maturity of between five and
ten years and an interest rate set at three percentage points
higher than Treasury obligations of comparable maturity. In
addition, the Secretary can set the rate higher if necessary to
ensure the interest paid under a loan exceeds the sum of costs
for that loan.
The Secretary can extend catastrophic loans to a State's
qualified reinsurance program, if the Secretary determines that
an event has occurred in that state resulting in insured losses
that exceed 150 percent of that State's direct written premium
for privately issued property and casualty insurance. The loan
amount cannot exceed the amount by which the insured losses
exceed the ceiling coverage level of the qualified reinsurance
program. Catastrophic loans have an annual interest rate 0.20
percentage points higher than marketable obligations of the
Treasury and a term to maturity of not less than ten years.
The loan proceeds may only be used to pay claims made to
qualified reinsurance programs.

Sec. 203.--Reports and audits

The Secretary is required to submit an annual report to the
President and Congress that identifies and describes loans made
under this title.

Sec. 204.--Funding

The Secretary is directed to collect a reasonable fee from
qualified reinsurance programs in order to offset the expenses
associated with the loan program. The Secretary shall require
the full repayment of loans made under Title II and must submit
a report to Congress when and if it is determined that such
loans will not be repaid.

Title III--General Provisions

Sec. 301.--Qualified reinsurance programs

A qualified reinsurance program is an entity authorized by
the State that provides reinsurance or retrocessional coverage
to underlying primary insurers or reinsurers for losses arising
from all personal residential lines of insurance. Authorizing
states must require that such programs pass any cost savings
onto insurance consumers, ensure compliance with building
codes, use a rate structure that reflects loss mitigation, and
set rates at a level that generates sufficient premium to pay
expected annualized claims. This section may not, however, be
construed to limit or prevent any insurer from obtaining
reinsurance coverage for insured losses retained by insurers.
In the case of states that do not have a qualified
reinsurance program, State residual insurance programs can be
considered qualified reinsurance programs for five years from
the date of enactment. The Secretary will establish procedures
and standards for state and regional reinsurance programs and
residual insurance market entities to apply for pre-
certification, certification, and recertification.

Sec. 302.--Definitions

Ceiling Coverage Level is the maximum aggregate amount of
coverage provided at any time by a qualified reinsurance
program.
Homeowners Insurance is as defined in the Uniform Property
& Casualty Product Coding Matrix published and maintained by
the National Association of Insurance Commissioners.
Insured Loss means any loss insured by a qualified
reinsurance program.
Qualified Reinsurance Program is a program that meets the
qualifications provided in section 301.

Sec. 303.--Regulations

The Treasury Secretary shall issue such regulations as may
be necessary to carry out this title.

ADDITIONAL VIEWS

It is unfortunate that the Committee has rushed to report
legislation that does little more than provide federally
subsidized loans to the insurance company of one state, at the
expense of taxpayers across the country. Only one hearing was
held on H.R. 3355, and practically every witness raised serious
concerns with the legislation. Despite the negative witness
testimony and opposition expressed by numerous environmental
groups, consumer organizations, and insurance experts, H.R.
3355 was rammed through the committee less than two months
after its introduction, on a near party-line vote. There are
several alternative proposals that have been introduced by
Members this year that directly address the tax, regulatory,
and marketplace issues that are causing a crisis in certain
states, and there is still an opportunity that the Committee
should consider to develop bipartisan consensus legislation.
As the nation's most hurricane-prone state, Florida has
repeatedly sought to secure more. affordable insurance for its
residents. According to a recent report issued by the
Georgetown University Law Center Environmental Law & Policy
Institute, since Hurricane Andrew in 1992, Florida's real
property values have increased from $421 billion to more than
$1.2 trillion, with 80 percent of Florida's 16 million
residents living within ten miles of the coast. Coastal
development has expanded wildly, despite the increased threat
of future hurricanes. In 2004, four huge storms--Charley,
Frances, Ivan, and Jeanne--hit Florida, causing about $29
billion in insured losses. In 2005, Hurricanes Katrina, Rita,
and Wilma ripped through the Atlantic and Gulf of Mexico,
causing even higher losses.
The increased frequency and magnitude of storms in Florida,
coupled with state regulations preventing insurers from
charging risk-based prices, limits on capital movement, and
uncertainty over legal and regulatory enforcement of contracts,
has caused many private insurers to reduce their exposure and
new underwriting in the state. Florida has tried to subsidize
the affordability of property insurance for residents, such as
requiring insurance companies to offer homeowners' coverage if
they seek to offer auto insurance in the state, mandating
below-market rates, and expanding the state insurance company.
In 2002, Florida created Citizens Property Insurance
Corporation as the state's ``insurer of last resort'' for
property owners unable to secure wind coverage through the
private market because of high hurricane risk. According to one
report, at its founding, Citizens had 600,000 policies and an
exposure of $148 billion. It is now Florida's largest property
insurer, with more than 1.3 million policies and an exposure of
around $440 billion.
Within 3 years of its creation, Citizens was billions of
dollars in debt. According to the Georgetown report, the
Florida legislature was forced to bail out Citizens by
appropriating $715 million from the state treasury, as well as
assessing insurers and policyholders. In addition to Citizens,
the state maintains the Florida Hurricane Catastrophe Fund
(FHCF), which sells subsidized reinsurance to insurers to
encourage them to write business in the state. The FHCF
currently provides $27.85 billion in coverage despite having
only $2.2 billion in non-debt cash assets.

MARKUP OF H.R. 3355, THE HOMEOWNERS' DEFENSE ACT OF 2007

On September 25, 2007, the Financial Services Committee
approved H.R. 3355 by a mostly party-line vote of 36-27.
Several fiscally-responsible Republican amendments were
rejected at markup. Representative Shays offered an amendment
to replace the convoluted text of H.R. 3355 with a bipartisan,
blue-ribbon commission to report specific recommendations to
Congress to increase the availability and affordability of
natural catastrophe insurance. This amendment is similar to
both H.R. 3644, a natural catastrophe commission bill sponsored
by Representatives Shays and Blumenauer, and a bill approved by
the Senate Banking Committee earlier this year. Representative
Shays' amendment would have required the Commission to
specifically examine the impact of H.R. 3355 and other
proposals currently before Congress, including Representative
Taylor's expansion of the NFIP to include wind insurance,
Representative Brown-Waite's natural catastrophe reinsurance
backstop, and tax reserving proposals by Representatives Feeney
and Jindal.
Representative Price offered three amendments to reduce the
burden this bill imposes on taxpayers. One amendment would have
allowed the Treasury Secretary to increase the event size
trigger before subsidized Federal loans would be provided to
limit further displacement of the private market. A higher
trigger would also encourage state reinsurance funds to build
additional surplus capital before an event. His second
amendment would have required Treasury to issue a loan only if
it would not displace or reduce private sector competitiveness.
His third amendment would have limited subsidized loans to
natural disaster events that Treasury determined exceeded the
capacity of the insurance industry for a particular region, or
that are greater than a one in one-hundred year nationwide
event for the homeowners' insurance marketplace.

REPUBLICAN CONCERNS REGARDING H.R. 3355

Treasury and various consumer, environmental, and industry
groups have voiced concerns that H.R. 3355 would expose
taxpayers to massive liabilities and encourage further
development along hurricane-prone coastlines. A critical Wall
Street Journal editorial dated October 10, 2007 quoted
Assistant Treasury Secretary Phillip Swagel, who testified at a
September 6, 2007 Financial Services Committee legislative
hearing on the bill, as saying ``taxpayers nationwide would
subsidize insurance rates in high-risk areas, which would be
both costly and unfair.'' On September 24, 2007, the National
Wildlife Federation transmitted a letter to Chairman Frank and
Ranking Member Bachus, opposing H.R. 3355 on grounds that the
bill does not contain adequate mitigation provisions, could
lead to increased building in vulnerable areas, and would
unnecessarily burden taxpayers.
It is unclear whether Title I of H.R. 3355, which would
create a voluntary Federal consortium to pool state catastrophe
risk, securitize that risk, and broker reinsurance contracts
for states, would offer any additional value other than
providing an implicit Federal guarantee or backing. States
already can and do purchase reinsurance and sell catastrophe
bonds through their risk pools and funds. In fact, Florida
raised money for the FHCF this way for the past two years. It
is dubious whether regional pooling facilitated by a consortium
would have any benefit in reducing costs over pooling through
the global reinsurance markets. Florida and other states with
catastrophe risks have already met and discussed on numerous
occasions pooling their risks, but without generating any new
synergies.
The ability of the consortium to dump billions of dollars
into the catastrophe bond marketplace is also highly
questionable. Catastrophe bonds are high-risk, but potentially
high-yield, financial instruments that generally appeal to
institutional investors wanting to hedge against other risks.
Large, sophisticated investors find these securities attractive
because the risk natural catastrophes pose differs, and is not
correlated with, financial risks in the capital markets. The
Committee has requested numerous Government Accountability
Office (GAO) studies in the past on catastrophe bonds that have
suggested the appetite for further cat bond issuance beyond its
current slow annual growth is significantly limited by the
sophistication required to analyze the offerings, the riskiness
of the issues, and its cost disadvantages versus traditional
reinsurance. At the legislative hearing on H.R. 3355, one
witness, a hedge fund manager specializing in risk-linked
securities, expressed doubts that the consortium would increase
demand for catastrophe bonds.
Even more troubling is Title II of H.R. 3355, which
mandates that Treasury offer below-market subsidized loans to
state reinsurance funds. Two types of long-term loans would be
available to states with a fund, although the FHCF is currently
the only pure reinsurance fund and, thus, the only ``qualified
reinsurance fund'' as described by the bill. Liquidity loans
would be offered in amounts up to the ceiling coverage limit of
state reinsurance funds that have a capital liquidity shortage
and are not able to access capital more cheaply. Catastrophic
loans would be available to state reinsurance funds after the
state experiences a natural catastrophe resulting in insured
losses of at least 150% of direct earned premium from the
previous year for all lines of property and casualty insurance
written in the state. While Title II has been criticized as a
subsidized Federal loan, a recent GAO report on natural
catastrophes questions whether Congressional disaster loans
would ever be repaid. Although the event size trigger for the
catastrophic loan was increased at Committee markup of the
bill, minimizing the chance that taxpayers will be on the hook
for relatively minor events, Republicans are concerned that
this increased trigger does not apply to liquidity loans. State
reinsurance funds would be eligible for liquidity loans upon
suffering ``insured losses,'' with no prescribed loss amount or
event size.
Despite receiving testimony from witnesses that H.R. 3355
lacks any real mitigation mechanism, little improvement has
been made in this area since the bill's introduction. The lack
of any additional mitigation mandates furthers the potential
exposure for taxpayers. As reported, H.R. 3355 requires
adherence to state building codes in order to be eligible for
liquidity and catastrophic loans, but this fails to recognize
that some states and localities lack effective building codes.
Substandard codes would not bar the receipt of these Federal
loans. Republicans also remain concerned that recipient states
would not be required to retain any losses before becoming
eligible for the loans. Without a retained loss requirement,
state reinsurance funds will have little incentive to
adequately capitalize prior to an event, relying instead on
post-event debt financing from the Federal government and
taxpayers. Instead of propping up bankrupt state programs that
undermine the private market, some Republicans have suggested
as a more efficient use of taxpayer dollars, encouraging
``reverse'' loans for ``equity rich, cash poor'' homeowners
meeting a set of criteria, to help defray the escalating costs
of private homeowners' insurance in the aftermath of a large
catastrophe. The rising cost of homeowners' insurance in
Florida has become a stultifying burden on many coastal
homeowners. Congress needs to be responsive to this crisis by
enacting thoughtful bipartisan reform that addresses the
marketplace and regulatory dysfunction. Unfortunately, H.R.
3355 falls far short of these goals.
Spencer Bachus.
Shelley Moore Capito.