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[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.

                                  
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