Barney Frank

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Chairman, I yield the balance of my time to the gentleman from Rhode Island (Mr. Langevin).

Mr. FRANK of Massachusetts. I would say yes, the taxpayers do pay. It is a matter of national defense. Where people are building and incurring risks, they should pay for it themselves. I accept that point. We are talking about how we respond to Osama bin Laden or other murderers who would attack this country. I think it is appropriate that the country as a whole respond, and not allow the terrorists to pick and choose which Americans will have to suffer disproportionately.

Mr. FRANK of Massachusetts. I yield to the gentleman from California.

Mr. FRANK of Massachusetts. If the gentleman would yield, he has pointed to a very important issue. We did try to make some accommodation with the small insurers, but I don't think we have finally done that. But I would say, you know, the notion that a bill that comes to the floor is not graven in stone shouldn't come as a surprise to people. We have a Senate. We have a genuine conference. It will be an open conference. I should say I understand why some of my colleagues on the Republican side were somewhat puzzled at the notion that we might go to conference and, in an open way in conference, further amend the bill. They didn't believe in that. They didn't have any. So for them, that was all done in secret. We will have an open conference to address these. And this is one of the issues. I do believe that it is legitimate. We will be meeting with, and the staffs will be meeting with, the smaller private insurers. To the extent possible consistent with the purpose of the bill, we will seek to improve on the accommodation.

Mr. FRANK of Massachusetts. Get to the question.

Mr. FRANK of Massachusetts. I yield 2 minutes to the gentlewoman from Florida (Ms. Wasserman Schultz).

Mr. FRANK of Massachusetts. I join the gentleman in opposition, and I want to address this charge that we heard from one of the Members that this is a typical liberal Democratic big-spending program. I will include for the Record a strong endorsement of H.R. 2761 from the Coalition to Insure Against Terrorism. It is composed of such traditional liberal groups as the American Bankers Association, the National Apartment Association, the National Association of Manufacturers, the U.S. Chamber of Commerce, the National Retail Federation, the National Restaurant Association and the National Association of Industrial and Office Property. Virtually every business involved in this, the Financial Services Roundtable, led by that radical, our former colleague, Mr. Bartlett of Texas, every business group from the insuring and insured part says this is not for the market. I would add also a letter from the National League of Cities strongly urging on behalf of the cities of America passage of this bill as it was reported out of committee. Finally, from the American Insurance Association, a strong argument. In particular, it thanks us for including nuclear, biological, chemical and radiological. Those who said the market can do it, it says two separate government studies have concluded what insurers already knew, that outside of State mandates, there is virtually no private insurance market capacity for NBCR. ``For this and other reasons,'' they like the whole bill, ``the American Insurance Association and its more than 350 property casualty insurance companies strongly endorse H.R. 2761 as it was reported out of the committee.'' They have got some concern about the reset, and we will talk about that and we agree with them. But here is this strong endorsement. Yes, it is true that this is something that some liberal Democrats support. And here is the signer on behalf of the American Insurance Association, Governor Marc Racicot, I believe a former chairman of the Republican National Committee. I want to congratulate my Democratic colleagues. To have insinuated a liberal Democrat into the chairmanship of the Republican National Committee is a degree of flexibility I didn't know we have. So this notion that this is some liberal invention and that the market can do it is repudiated by everyone who knows anything about the market. I hope the amendment is defeated and the bill is passed. Vote ``Yes'' on H.R. 2761 The undersigned members of the Coalition to Insure Against Terrorism (CIAT), a broad based coalition of business insurance policyholders representing a significant segment of the nation's GDP, strongly urge you to vote ``yes'' on H.R. 2761 Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA). American Bankers Association; American Bankers Insurance Association; American Council of Engineering Companies; American Gas Association; American Hotel and Lodging Association; American Land Title Association; American Public Gas Association; American Public Power Association; American Resort Development Association; American Society of Association Executives; Associated Builders and Contractors; Associated General Contractors of America; Association of American Railroads; Association of Art Museum Directors; Babson Capital Management LLC; The Bond Market Association; Building Owners and Managers Association International; Boston Properties; and CCIM Institute. Campbell Soup Company; Century 21 Department Stores; Chemical Producers and Distributors Association; Citigroup Inc.; Commercial Mortgage Securities Association; Cornerstone Real Estate Advisers, Inc.; CSX Corporation; Edison Electric Institute; Electric Power Supply Association; The Financial Services Roundtable; The Food Marketing Institute; General Aviation Manufacturers Association; Helicopter Association International; Hilton Hotels Corporation; Host Hotels and Resorts; Independent Electrical Contractors; Institute of Real Estate Management; Intercontinental Hotels; and International Council of Shopping Centers. International Franchise Association; International Safety Equipment Association; The Long Island Import Export Association; Marriott International; Mortgage Bankers Association; National Apartment Association; National Association of Home Builders; National Association of Industrial and Office Properties; National Association of Manufacturers; National Association of REALTORS'; National Association of Real Estate Investment Trusts; National Association of Waterfront Employers; National Association of Wholesaler-Distributors; National Basketball Association; National Collegiate Athletic Association; National Council of Chain Restaurants; National Football League; National Hockey League; and National Multi Housing Council. National Petrochemical & Refiners Association; National Restaurant Association; National Retail Federation; National Roofing Contractors Association; National Rural Electric Cooperative Association; The New England Council; Partnership for New York City; Office of the Commissioner of Baseball; Public Utilities Risk Management Association; The Real Estate Board of New York; The Real Estate Roundtable; Society of American Florists; Starwood Hotels and Resorts; Taxicab, Limousine & Paratransit Association; Travel Business Roundtable; Trizec Properties, Inc.; UJA-Federation of New York; Union Pacific Corporation; and U.S. Chamber of Commerce.

Mr. FRANK of Massachusetts. I thank the gentleman, but I take back my time. He will vote in favor of the legislation after it is sent back to committee, after it is wide open again to an amendment process, after members of the committee on his side of the aisle will offer a whole lot of new amendments. And so weeks could go by before we are able to get floor time again and do it. There are a lot of things on the floor, and they are complaining that we didn't pass other things. So the gentleman will vote for it in the sweet by-and-by if we send it back. There is an alternative: We go through the regular process. The Senate votes on this, aware of the CBO. We go to an open conference. We debate it, and we bring that to the floor. I will yield again to the gentleman.

Mr. FRANK of Massachusetts. Mr. Chairman, this is a continuation of a program that the Congress adopted in one of the previous Congresses to provide insurance in case of a terrorist attack. We had, obviously, the terrible murderous attack on America in 2001. Substantial damage was done. Obviously, the overwhelming cost of that was in the human lives caused by these murderers, but we also had property damage. And I believe that it is unrealistic to think, and in fact inappropriate to urge, that the private insurance market, which functions very well in this country and serves us well, that that ought to be used in response to terrorism. We bring a bill forward that would provide both for life and property insurance from the Federal Government worked out in various ways. There are two arguments for continuing this on an ongoing basis. Everybody agrees that it needs to be extended for a while. Some have said phase it out, let the private market ultimately take it over. I believe there are two reasons why that is not a good idea. First, virtually no entities that are in the private insurance market believe that the private market could handle this well. Not only do the insurers believe that, but the customers of the insurance believe it. And primarily, by the way, the customers here are commercial real estate developers. People who are going to build large commercial buildings with tens, hundreds of millions of dollars in construction costs cannot build without a bank loan, and the banks will not lend and would not be allowed to lend by the regulators without fully insuring against all risks, including the risks of the terrorism that we wish were not around but clearly still is. We do not believe, based on extensive conversations with virtually everyone in the marketplace, that this will work. In fact, I submit for printing in the Record a letter from the head of Goldman Sachs in 2005, that very important financial institution, clearly an entity that knows a great deal about the market. And in 2005, only 2 years ago, after we had TRIA for a while and the question was coming up about whether or not to continue it, he wrote to the gentleman from Louisiana (Mr. Baker), then Chair of the Capital Market Subcommittee, that: ``Current data suggests that reinsurance, and consequently insurance, participation in the terrorism insurance market will decline if the Federal backstop is left to expire. ``Some have suggested that private markets for terrorism can successfully utilize risk transfer mechanisms such as catastrophe bonds. ``There is no evidence to suggest that the rating agencies or capital markets investors will be able to quantify the risk.'' And what he says is that he does not believe the market can do this. The Goldman Sachs Group, Inc., New York, NY, July 26, 2005. Hon. Richard Baker, Chairman, Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, House of Representatives, Cannon House Office Building, Washington, DC. Dear Mr. Chairman: On behalf of The Goldman Sachs Group, lnc., a leading global investment banking, securities and investment management firm, I am writing to express my support for maintaining a federal terrorism insurance backstop. The federal terrorism insurance program, enacted by the Terrorism Risk Insurance Act of 2002 (TRIA), has helped provide the underpinning to a robust economic recovery despite the ongoing threat of terrorism. Notwithstanding Treasury's conclusion that TRIA has achieved its original purpose, we are not aware of any meaningful evidence showing that private terrorism risk insurance or reinsurance markets have developed ample capacity to rationally price and insure against terrorism on a scale that would adequately protect our nation's economy. In fact, current data suggests that reinsurance, and consequently insurance, participation in the terrorism insurance market likely will decline significantly if the federal terrorism insurance backstop is left to expire. Some have suggested that private markets for terrorism risk can successfully utilize risk transfer mechanisms such as catastrophe bonds (CAT bonds) that transfer risk from insurers to capital markets. Such securitization vehicles, however, represent a minor percentage of the overall insurance market and have been used mainly for natural disasters, such as earthquakes and hurricanes. There is no evidence to suggest that the rating agencies or capital markets investors will be able to more effectively quantify the risk of terrorism than insurers or reinsurers. As such, CAT bonds and other risk transfer mechanisms are unlikely to offer, at this time, the broad capacity necessary to insure America's businesses, workers and property owners against the risk of terrorism. With less than five months remaining in the current program, American businesses soon will be forced to compete for portions of a severely constrained private insurance market and risk the possibility of being left with inadequate levels of terrorism insurance. In short, we simply cannot afford to let the private sector be economically exposed. I appreciate your attention to this very important matter. Sincerely, Henry M. Paulson, Jr., Chairman and Chief Executive Officer. The CEO of Goldman Sachs who signed this is a very distinguished expert, Henry M. Paulson, Jr. He is no longer the chief of Goldman Sachs; he is now the Secretary of the Treasury and has somewhat different views, but this is a letter that he sent in late July 2005. So we don't think the market can handle it. But I want to argue that even if you thought the market could handle it, we shouldn't ask it to for this reason: If you insure against risk, you ultimately pass the costs along to the people who are at risk. Insurance allows you to spread that risk out among those who are at risk. But the more you are at risk, the more you pay in insurance. If we were to adopt a purely market solution, that would mean that those parts of the country which were calculated to be likelier targets of terrorism would pay more. That is the insurance principle. If you are more likely to be the victim of terrorism, then you should pay more. I do not think we should allow vicious fanatics who hate this country and seek to inflict severe physical damage on us to decide where it should be more expensive to do business in our country and where it should not. But if you use the private insurance mechanism, that is what you get. There is another problem with the private insurance mechanism, not a problem, a good facet, that doesn't apply here. What you can do with private insurance is to say to these entities: You know what, if you lower your risk, we will lower your insurance costs. But people who have large office buildings cannot significantly lower their risk of being attacked by terrorists. If they could, we wouldn't want them to be. We wouldn't want people in America in the business sector to be told, well, why don't you try to appease the terrorists so they don't blow you up. So it ought to be a public program. Now, we have had significant debate in the committee. We had in the subcommittee and committee two full markups, an unusual degree of attention. A number of amendments were adopted from both parties. It is a different and, I believe, better bill now than it was when it was introduced. There are still some philosophical differences. There is one issue, though, that came up after the committee consideration, and to our surprise the Congressional Budget Office said that this is going to cost a certain amount of money. I will get the estimate. I think they said $10 billion over a period of 10 years. That is a very odd thing to say. A terrorist attack will cost hundreds of billions if it happens; it will cost nothing if it doesn't. They apparently used some calculation of probability, which I think is in itself kind of dubious. Nobody, I think, can realistically talk about the probability of a terrorist attack, to give us the number that it will cost $3.5 billion over 5 years and $8.4 billion over 10 years. One thing we know for sure is that these estimates are wrong. It will either cost a lot more, or nothing. CBO did its job, I don't think very well. Maybe that is because of the constraints they operate under. I don't make a personal criticism of them. But we have this PAYGO rule. I will say that my own preference as an individual Member would have been to grant an emergency waiver, because if a terrorist attack is an emergency, then we shouldn't have that in there. I do not represent the thinking of the majority as of now on this or the Democratic leadership. That is an open question to evolve. So we did the next best thing, which is to adopt a set of procedures to deal with what will happen if the Federal Government has to make a payout under this. I will say that I think that was a good effort, given the time frame. And I think it is important, given the potential expiration or the expiration date, that we should move forward, and maybe it will encourage our colleagues across the Capitol to act. I do not believe that what we have in here will be the final answer. We have one possibility: Maybe a consensus will develop on a waiver. I can't say that I have confidence in that, but I certainly will advocate for it. If we can't get a waiver, we will within the framework of the PAYGO requirement, $3 billion over 5 years, try to work something out. And I know that is what the Democratic leadership has assured the Members from New York in particular, that they will do their best within the context of PAYGO to work this out. And I believe we can improve on where we are. We will reduce the risk that there won't be payment to the minimum amount possible, and then maybe we share that risk. So I do not believe that what we have in this bill will be the final version. I think it is important to move this process along. I think this is as good an effort to do it as we could now. We will have to be consulting with the various parties in interest, including the cities, including the insurers, including the insured and others, and we will move forward on that. So I do believe it is very important to move forward now. The only reason to vote against this bill at this point is not because of disagreement on some of the specifics. They will evolve as we go forward, particularly in the PAYGO response. But if you believe this is something that should be left to the market, and I do not believe that the market can or should be asked to handle terrorism. Adam Smith is one of the great intellectual contributors to thought in this world, but I don't think he knew much about terrorism, luckily for him. I do not think that the free market was adopted or is adaptable to murderous attacks of the sort we had on September 11. So I believe this is the best we can do at this point. It is a very good bill, I believe, not perfect, with regard to the PAYGO fix, but that is something that I believe will evolve. I have every confidence that we will be able to do it better as we go forward, and I hope the bill passes. I reserve the balance of my time.

Mr. FRANK of Massachusetts. I know turf is more important to some Members than anything else.

Mr. FRANK of Massachusetts. Mr. Chairman, I thank the ranking member. We were able to work out a number of these things. I would just want to return to a couple of broader points. I want to make two points. One, I don't think the market will work and neither does any participant in the market either as an insurer, or any significant number, or as the insured. But even if it could, it does not seem to me that it should. If you did this purely in the private market, you would give to the vicious attackers of America the power to decide that it would be more expensive to do business in some parts of our country than others. You could have another video from the despicable Osama Bin Laden in which he could threaten that he would take action against this area or that area, these facilities or those facilities, and their insurance premiums would go up. Yes, the private market should govern all those things which it deals with, with fire and with other forms of casualty and even with natural disasters. But to put in the hands of America's enemies this economic power is a grave error. Should the taxpayers pay for it? Yes, because it is a matter of national defense. It is a matter of homeland security. We are not talking about insuring people against the risk if they built a commercial building of liability to injury, of fire, of theft, of improper or inadequate construction. We are saying that, no, if you are in business in America, you should not have to insure against an attack on this country based on hatred of us. So that is why I believe that we should do this as a public policy matter. Mr. Chairman, at this point, I yield 2 minutes to the gentleman from North Carolina, a member of the committee who is one of our most thoughtful Members to discuss the general principle of the bill.

Mr. FRANK of Massachusetts. Mr. Speaker, I rise in opposition to the motion to recommit.

Mr. FRANK of Massachusetts. First of all, of course it says ``promptly.'' Members make a choice. The purpose of this is terrorism risk insurance expires the end of this year. We are on a reasonable timetable but not one that has a lot of water in it. Yesterday, on an important bill that goes before the Committee on Financial Services, they said ``promptly.'' So the notion is that they can make the Committee on Financial Services a revolving door and then complain when we can't get the work done when we will have to do it two and three times. Secondly, Members on the other side, and I don't know where the gentleman from California was on this, but in Committee, before the PAYGO problem arose, while we got substantial Republican support, 14, 19 Republicans, including the ranking member, voted ``no.'' So the Republicans had taken an opposing position in the majority. The administration is in the majority against it. And what are they telling us? That a bill that the Republicans on the whole are against doesn't do enough for the people who want the bill. This is people intervening on behalf of people who don't want their intervention. It is true that there is some ambiguity that I hope will be resolved; but the American Insurance Association, and that is the group that, despite the Republican's argument that this can be done by the market, says no, the market can't handle it. And, in a letter signed by a former chairman of the Republican National Committee, Governor Marc Racicot, president of the AIA, they say please go ahead with the bill. And they say: We have concerns about this fix. We hope we can go forward and work on it as opposed to delaying it further. We got a letter today from the Chamber of Commerce and the National Association of Manufacturers, the Bankers, the League of Cities, being aware of the problem and of the first cut at fixing it, that say please go forward. Now, if the people who were expecting to be the participants in this program said, wait a minute, this can't go forward, they would be, I think, entitled to be listened to. When people who have on the whole been opposed to the whole program and who voted against it before this arose now appear to say, oh, my goodness, this poor program, you are not doing enough justice, when they want to kill it, I don't think have a lot of credibility. So, yes, this does need some work. There are a variety of suggestions that have been made. We do have a Senate to go forward and we have a conference process. And I will say to the Republicans, I understand their skepticism about a conference process, because when they were in the power, they didn't have any. They did a lot of backroom, okay, we will do this. We will have a conference. I am chairman of this committee. I can promise, and I have talked to the leadership, we will have an open conference and there will be debates and discussions. I am explaining it because the Republicans, some of them, the newer ones don't know what one is. It will be the House and the Senate, and we will talk about it. And so we will address this particular issue. And, again, all of those who are in favor of this program as it was drafted, all of them want us to go forward as we continue to make this final fix. Most of those who are saying, oh, no, you can't go forward, it is not perfect, didn't like it in any case.

Mr. FRANK of Massachusetts. I agree with the gentlewoman on both points. First, there is nothing in this language, and I should say that this issue of preventing unfair denials of life insurance, she was the one who brought it up. She brought it up in the prior Congress. And now that we are in the majority, we are able to accommodate it. I appreciate the fact that the gentlewoman worked with us as we worked with the life insurance companies. I believe we have an acceptable set of principles. She is right that this language does need a little bit more, I think, refinement on conflict. I think there's a conceptual agreement. I agree with her as to the need for definition. As a preemption, that is very simple. I am a strong believer we should not be preempting unless we say so explicitly. There has been an excess of subtle preemption. By itself, this bill does not do that. Insurance has been primarily a State issue. This is a Federal statement, but it is not at all meant to be preemptive.

Mr. FRANK of Massachusetts. It is rather odd to proclaim yourself an institutionalist while violating the rules. The fact is that I understand turf makes some people jittery. And I will certainly advocate that the Rules Committee be included in the conference report. Again, the Republicans have forgotten how conferences work. Conferences can have more than one committee, so the Rules Committee can get representation on the conference. Again, everybody who is for this bill in the House and the private sector, people on the whole and the cities, the representatives of the public affected, want us to go forward and say, in good faith work, this out. People who have been on the whole opposed to it, not entirely but on the whole opposed to it, have found this hook to try and hold it up. I don't think they are trying to hold it up to make it better when a majority of them wanted to kill it in the first place.

Mr. FRANK of Massachusetts. Before I yield to the gentleman from Vermont (Mr. Welch), I would just point out that when we voted on this in committee before we had the PAYGO glitch, the vote on the Republican side was 19 opposed, 14 in favor, so it was hardly a one-sided partisan bill. It partly reflects the work that the gentleman from Pennsylvania (Mr. Kanjorski) did in accommodating a lot of the concerns. Mr. Chairman, I yield 2 minutes to the gentleman from Vermont.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, there are several aspects of this. One is, of course, whether or not we should go forward with a renewal of terrorism risk insurance. There are, in our midst, people who believe in the free market so firmly that they believe in it the way other people believe in unicorns. They believe in it even when it does not exist. There are people who oppose terrorism risk insurance from the outset and continue to because they say it should be up to the market. No one involved in the market thinks that makes sense. Indeed, we received a letter from the head of Goldman Sachs in 2005 saying there is no evidence that this can become a market item. His name was Henry Paulson, and he quite clearly said at the time the market wouldn't do it. We then proceeded with a bill that took that into account. By the way, if the market could do it, it shouldn't because here is what the market would do, and we are talking about the insurance market: If you left this to the market or if you try to phase this out so the market would take it over, the principle of insurance says it should be more expensive to do business in those parts of the country which are likeliest to be hit by terrorists than not because that's the insurance principle. If there is a higher risk, you charge people more. We should not allow murderous fanatics who seek to damage this country to dictate what the cost of doing business is in different regions. That's not a market decision; that's a national security decision. I don't want it to be more expensive because of the murderers who would try to undermine this country to do business here or there. It is also the case that one of the principles of insurance is that you give it and you give incentives to the insured to reduce the risk and you price in a way that gives those incentives. People can't avoid the risk. There is nothing you can do to stop the terrorists as private citizens from attacking you. So we were going ahead with the bill. Now, we had a set of markups in subcommittee and committee in which there were some disagreements but some agreements. A number of amendments offered by Republican Members were adopted and the bill had a very large vote coming out of committee. We then ran into a surprising obstacle. The Congressional Budget Office issued what seems to me an intellectually quite weak opinion. They said this is going to cost $10 billion over the next 5 years. Now, a $10 billion terrorism attack is not within our contemplation. I could see their saying it is not going to cost anything for this period or that it is going to cost hundreds of billions. Apparently they calculated the probability of a terrorist attack and imputed that cost. There will, in fact, be no costs until there is an attack. My own view, frankly, was that this would have justified an emergency waiver under PAYGO. If being attacked by terrorists, if September 11, 2001, was not an emergency, then I don't understand what the word means. We have been forced now to try to deal with this in other ways, and I understand that. It has been forced on us by CBO. The notion that we can say something now and leave it to future Congresses, the gentleman from Texas said it was unconstitutional. I am aware of no Supreme Court decision that would invalidate what we have proposed here. And it couldn't be binding. Nothing is binding of one on a future one. I think that would be a very high degree of probability. So we do have this approach which came up suddenly. It came up suddenly. It wasn't debated in our committee because the issue of the CBO estimate hadn't come before us in the committee. So we now have Members on the other side complaining that the rule was too restrictive. Mr. Speaker, when I hear Members of the Republican Party who ran this House in the most blatantly undemocrat fashion for so many years now complain about a lack of democracy, I feel like I am in a motion picture theater and I'm watching an Ingmar Bergman dark movie which features the Three Stooges. The incongruity of these masters of authoritarian legislative procedure now complaining because there isn't enough democracy is one of the great conversions of all time. And I would have to say to my born-again believers in an open process that in this case at the committee level, we had a hearing, we had a subcommittee markup and a committee markup, and we dealt very much with those issues. My own preference would have been to allow a few more amendments, but the fundamental issues have been debated, and the key issue is, unfortunately, the one that has troubled them, is how do you deal with the CBO. Now, either you do a waiver of PAYGO or you make cuts now of $10 billion in programs on the possibility of there being a terrorist attack. It seems to me that is a great favor to terrorists. Let them cut programs now by just threatening to blow us up. Or you try to come up with some set of procedures that say we really intend to do this but we can't make it absolutely binding. I do not think the set of procedures we have here will be the final say. It was a difficult situation that we found with that, I thought, CBO estimate. And the CBO estimate basically says here is what we say but it's probably not going to be this way. And I hope, as we go forward, there will be meetings with industry. And, by the way, industry is not just the insurance industry. It's the commercial building industry. They are the ones who are at risk here. The insurance industry can walk away, but if they walk away, we won't get commercial buildings built, particularly in our big cities, which is why the mayors of the big cities are so concerned and others are concerned about economic development. So we need further work to see how we can deal with this CBO issue, and I think we have a reasonable first cut. It is one where, it is true, we did not deal with it in our committee. What we dealt with in the committee in great detail with a number of amendments and a lot of compromise were all the other factors. And we now get this new issue. This is a good-faith effort to deal with the new issue but not in a way that is final. So I hope we can go forward.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that in the engrossment of H.R. 2761, the Clerk be authorized to correct section numbers, punctuation, cross-references, and to make such other technical and conforming changes as may be necessary to accurately reflect the actions of the House.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that all Members have 5 legislative days within which to revise and extend their remarks on H.R. 2761 and to insert extraneous material therein.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Madam Chairman, I yield myself 3 minutes. The gentlewoman, incredibly, says this will jeopardize the solvency of the fund if we put money into affordable housing. I thought reading was one of the basic things we did around here. In the bill it says nothing can go to the Affordable Housing Fund if it would jeopardize solvency. Simply denying plain facts is not an appropriate way to debate. In much of her argument she talks about another piece that represents the difference between us. We say that if you are someone with a weaker credible, a lower FICO score, the great god, FICO, that governs the lives of lower-income people, if you get your mortgage insured and you work hard and make all your payments, you should still be charged more than the gentlewoman from Illinois or I would be charged for a mortgage, because that is the insurance principle. It is an appropriate principle for a private insurance company. For the Federal Government to say to hardworking people who are making their payments that they will be held accountable for the fact that other people didn't make their payments, and I won't be and the gentlewoman from Illinois wouldn't be, that is not appropriate. So this principle of, yes, they say if you are healthy, you shouldn't get your money back, if you work hard and make your mortgage payments, why should you be charged more because somebody else like you defaulted? Let's all share that burden. The gentlewoman said, well, it will be hard to give lower-income people loans. Those are crocodile tears. You are going to help these lower-income people by making them pay more for their mortgage than we would pay. I would also note, and I wasn't in charge of the drafting, but we did adopt several amendments today. The gentlewoman's amendment would, of course, wipe all of them out because it would go back to last year's bill. I understand there is regret on the part of many of my colleagues at the results of last November's election, and it is appropriate to try to undue last year's election. The appropriate time to do that is in next November's election, not by bills that passed a year ago with a differently constructed House and say let's not make any changes. We made changes to accommodate refinancing for people caught in the subprime crisis. That is in this bill. It is not in the gentlewoman's substitute. Taking a year-old bill, with none of the improvements we have made, it goes beyond the philosophy. Now, I understand Members don't want to do an affordable housing fund. That was the gentleman from Texas's amendment. I oppose it. That one makes some sense in terms of ideological division. But to say let's ignore everything that has happened in the last year, amendments adopted here today, several amendments by Members of both parties, the gentleman from California (Mr. Gary G. Miller); the gentleman from Ohio (Mr. Tiberi); the gentleman from Massachusetts (Mr. Tierney); the gentleman from New York (Mr. Bishop). We adopted their amendments. The gentlewoman wants to wipe them out. That is not an appropriate way to legislate. I hope that the amendment is defeated, that we do not say in particular that if you are someone in a lower-income category and you make your mortgage payments, the Federal Government will charge you more. Madam Chairman, I reserve the balance of my time.

Mr. FRANK of Massachusetts. Thank you, Madam Chairman. We have been debating this. It is a legitimate issue. We debated it when the gentleman from Georgia offered a version of it in the appropriations bill. We debated it previously. We debated a similar argument when we had the GSE bill. The gentleman says there are 80 HUD programs and HUD money has gone up. The major reason the HUD funding has gone up, the single biggest one, has been in the section 8 rental program. There is a problem with section 8. Section 8 adds equity. But the current section 8 program provides rental assistance for one year at a time. No one can build affordable housing based on an annual grant. So what section 8 does, while it does provide some equity and I have been supportive of it, it increases the demand for housing without increasing the supply. So in the current formation of Federal policies, the Federal Government puts upward pressure on rentals in the moderate- and low- income areas, because we give people billions of dollars to rent apartments in a way that does not lead to any construction. This tries to make it a more balanced program. This and the GSE bill take money to begin the process of constructing affordable housing, which in the end could save us money, because it will then say that the rental levels which section 8 is driving up will no longer be driven up. The gentleman says it is going to be a tax on the FHA. In fact, I hope the gentleman, given his concern about a tax on the people who get mortgage insurance from the FHA, will vote against the amendment to be offered by the gentlewoman from Illinois, because in this bill, unlike the gentlewoman's amendment, we have very tough restrictions on HUD's ability to raise the FHA fund unless it is necessary for solvency. In a bipartisan basis last year, we wrote to them and we did it in the appropriations bill, because HUD was being told by OMB, not HUD, HUD made it very clear, this was an OMB directive, raise the FHA fees because FHA isn't contributing enough to the budget. We put into our bill's restrictions, we have a restriction in our bill on the amount that can be charged for home equity mortgages by the originators. It is not in the gentlewoman from Illinois's amendment. We put caps on the FHA. So exactly the opposite is the case. And as far as this is concerned, the bill specifically says that no money can go to the Housing Trust Fund until the HUD Secretary has certified that the fund will be totally solvent and this will not endanger it. The money that would go to affordable housing does not come from raising anybody's fee. It comes from an increase in volume. We capped the fees. I want to emphasize this. In the bill that we have, as opposed to the gentlewoman from Illinois's substitute, there are two separate restrictions on FHA's ability to raise fees that she doesn't have. What we do is the law now says FHA can only do 65,000 home equity reverse mortgages a year. We say, no, there is no reason for that limit. We say do as many as the market will bear, with a restriction on what can be charged. That is what generates the money. It is an increase in volume at a lower price to the consumer that generates the money; and if that increased volume and the lower price to the consumer results in there being a surplus that we can spend to build rental housing, as long as HUD certifies that that would not in any way require any increase in the FHA, we say, go ahead. As to affordable housing, there is a severe crisis in rental housing in this country, and you had some of the people pushed into subprime situations because there wasn't enough rental housing. We think the Affordable Housing Trust Fund helps deal with that. Madam Chairman, I reserve the balance of my time.

Mr. FRANK of Massachusetts. I thank the gentlewoman, the Chair of the Housing Subcommittee who has worked so hard all year on a number of very important pieces of legislation. And I appreciate the kind words of the ranking member. I congratulate him on the newest addition to his extended family. And he correctly says, there is a lot in this bill that we agree with; there are some things that we disagree. Now, the ranking member of the subcommittee, the gentlewoman from Illinois, the ranking member of the full committee. I should note, the gentlewoman from Illinois is no longer the ranking member of this subcommittee, she was recently moved, but she was during the pendency of this bill. They noted that last year a bill passed the House by 400 to a handful on the FHA, and that is true. And the reason is, that is the difference between us and them. Last year, when they were in the majority, they came out with a bill that had some things in it that we liked, a couple things that we didn't like, so we were reasonable and conciliatory and voted for it. And now we are in the majority. And it is an odd argument to say that the bill that they passed when they were in the majority, having defeated some of our amendments, somehow now, because we were conciliatory last year and supported it, we are obligated to do the same thing. The principle of deja vu all over again is not to be found in Jefferson's Manual. It is not binding. We built on what we agreed to last year and we added some things. Let me talk about where we disagree. Oddly, the administration insists that when we do mortgage insurance for lower income people, we agree, that going forward, and even in fact in helping in the current crisis, FHA mortgage insurance should be available for people with weaker credit who are in the subprime category, now, if they can refinance at a steady rate in the future so they can go there in the first place. But what the administration says is this: If you are a woman making $48,000 a year and your credit isn't great for a variety of reasons and you get mortgage insurance from the FHA, this administration and the approach of my Republican colleagues is to charge her more than any Member of this House would be charged for the same mortgage insurance, because what they say is, we will extend it to people with weaker credit, but we will charge them more, because people with weaker credit are likely to default. It is true people with weaker credit are likelier to default, but should everybody be penalized financially because some people with weaker credit will default? What we say is, if you are in that higher risk category and you go forward and make your payments on time, you should be refunded that money after 5 years automatically, 3 years at the discretion of HUD. So I reject the notion that we should make the person in the lower credit category who conscientiously makes her payments be the one who has to bear the cost of a loan loss rate that is higher for people like her. That is not her fault. Secondly, we have in here tougher restrictions than last year on the ability of HUD to raise FHA rates. Members will note, the FHA has been making a surplus recently, and the administration likes that and they can use that to put into the general budget so Housing and the FHA subsidize the rest of the budget. And a couple of times on a fully bipartisan basis, through the appropriators and through our committee, we have written to HUD saying, no, don't do that. Don't raise FHA fees when you are already making a profit. This bill, in fact, reduces the ability of HUD to raise fees unless they can document that they are going to go in the red, and that is one of the differences. If you vote for a substitute, you will be voting for a weaker set of restrictions on HUD's ability to raise FHA fees. That is why the home builders and the realtors have generally been supportive of the approach that we are taking, because we don't want HUD to have the freedom to raise the fees just to make a surplus for the rest of the government and make homeowners do that initial surplus. In addition, by the way, we take the cap off home equity mortgages, and that is what generates the money. We don't generate the money for the affordable housing fund here by raising fees on mortgage insurance in general; in fact, we restrict HUD's ability to do that. We do take the cap off mortgage insurance. So what we are saying is, there will be more home equity mortgages granted. And, in fact, we put a restriction on the fee that can be charged by those who originate them. Not in the minority's substitute, I believe. And we say that extra money that comes not from raising anybody's fees but increasing the volume is what we can use for affordable housing. We also say that you should raise the limit. Now, the administration had been opposed to it and they are parading it some but I believe not enough. We now have a situation in which the market is telling us that they will not do mortgages if they go above the FHA-GSE limit. And what this bill does is, A, to raise the limit based on the regional variation in house prices, but, in addition, says to the Secretary of HUD: If the market freezes up as it now does, you have discretion, the discretion of the Secretary of HUD, to do a temporary increase in the limits. And I think that is a reasonable approach. Finally, the Affordable Housing Trust Fund. Be very clear. Look at the bill. Not a penny can go to the Affordable Housing Trust Fund under the legislation before us today until the Secretary of HUD certifies that the FHA fund is fully solvent. That is, there is no way under this bill that a penny can go to the Affordable Housing Trust Fund if it would in any way cause an increase in FHA mortgage insurance or in any way jeopardize the fund. The question is, if there is a surplus generated by the mortgage insurance rates, and remember, we are saying to HUD you can't charge as much as you want to. So at the lower rate we impose and with the increase in the volume of home equity mortgages that generates a surplus, does it go into the Treasury to do as they wish or can we set it aside for an affordable housing program? And for the first time, because you do not have now a lot, there are a lot of HUD programs, but there aren't any now that help build family affordable housing. We have some for the elderly; HUD tries to cut it. We have some for the disabled; HUD tries to cut it. We do not have a general program for helping to build affordable family housing, and that is what this bill would do. But only if by raising revenue. And, by the way, when we increased it, there was an odd statement in which they said don't raise the upper limit, have the program be focused on the lower income people. They are not competitive. In fact, raising the upper limit makes money for the FHA. CBO has told us that when you raise the limit, that is a profit for FHA. In fact, raising the limit at the top is one of the reasons why we can avoid charging the people with weaker credit more, which the FHA wants to do, because we recycle some of that profit that they will make from right in the upper end into helping offset the higher loan loss rate from people at the lower end. So the notion that in any way we are deteriorating our ability to help the moderate people is just nonsense. It is literal nonsense. Because raising the upper limit, all it does is provide more funds which can be used, because the alternative, and again this is in the Bush administration's approach: Yes, we will extend credit to people with weaker credit, but we will charge those individuals more than somebody who is richer even if that individual is making the payment. I don't think that is appropriate for the Federal Government. There has been a lot of bipartisan cooperation on this bill. There were a couple amendments offered. One amendment is jointly offered by myself and the gentleman from California (Mr. Miller). There are amendments offered by the gentleman from Ohio (Mr. Tiberi) which we think is a good idea. Mr. Miller has another one dealing with down payment assistance. Mr. Tiberi's deals with the question of counseling. We are supportive of those. There is a great deal of bipartisanship here. The realtors and home builders, two of the private sector groups strongly committed to helping with homeownership and home building, support this bill and support our versions of it. All the consumer groups, the people who advocate for low income housing do. I hope that the bill is adopted. There are some amendments that would kill it. I will say there is an amendment to strike the funds for the Affordable Housing Fund. Members might want to check. A virtually identical amendment was offered during the appropriations bill to prohibit any FHA money from going there. It was defeated by 2-1. It was a very large vote on this side, obviously, but a significant vote on the other side. We have debated all these issues. I hope by the end of the day we will send the FHA bill through. And let me just close by saying I welcome what the administration did. We are moving closer. I hope by the end of today we will have sent this bill to the Senate, along with the GSE bill. And I have spoken to Secretary Paulson and I have spoken with Members of the Senate. If the Senate will then take up the GSE bills and the FHA bills, I know there are differences, we want a signature on both bills. We will have a genuine three-sided conference; ourselves, both parties; the Senate, both parties; the Secretary of Treasury, the Secretary of HUD. And I believe if the Senate will act well before Thanksgiving, we can have a good package in which the GSEs and FHA are made sounder and more solid and better able to serve the people.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that all Members have 5 legislative days within which to revise and extend their remarks on H.R. 1852 and insert extraneous material.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that the Clerk be authorized to make technical corrections in the engrossment of H.R. 1852, to include corrections in spelling, punctuation, section numbering and cross-referencing, and the insertion of appropriate headings.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that during consideration of H.R. 1852 in the Committee of the Whole, pursuant to House Resolution 650, amendment No. 2 may be offered out of sequence by a cosponsor, the gentleman from California (Mr. Cardoza).