The House Financial Services Committee approved a package of bills Wednesday designed to improve bank liquidity and reduce foreclosures.

The package included three bills that would broaden the Federal Deposit Insurance Corp.'s (FDIC), make improvements to the Hope for Homeowners program, and protect servicers conducting loan modifications from investor lawsuits.

House Financial Services Chairman Barney Frank, D-Mass., has said that the committee bills are likely to be considered by the full House next week as part of a package that combines housing with mortgage bankruptcy reform.

The committee approved a bill by voice vote that would make permanent the FDIC's temporary increase in deposit insurance coverage to $250,000.

The banking industry has backed the bill, even though the increased coverage would trigger higher premiums by reducing the Deposit Insurance Fund's reserve ratio. To make the cost of higher premiums more manageable, the bill would give banks eight years — or three more than current law — to bring the fund's ratio back to its 1.15% statutory minimum.

The bill also would more than triple the FDIC's borrowing authority with the Treasury Department, to $100 billion.

The committee approved an amendment from Rep. Luis Gutierrez, D-Ill., that would increase the National Credit Union Administration's borrowing authority to $6 billion, from $100 million.
In addition, the committee approved a bill that would attempt to increase use of the Hope for Homeowners program by reducing the cost for lenders to participate.

The program, which lets lenders reduce a borrower's mortgage in exchange for a government guarantee through the Federal Housing Administration (FHA), has proven cumbersome and costly for servicers.

During the vote, Republicans criticized Hope for Homeowners. Rep. Randy Neugebauer, R-Tex., said only 25 borrowers have refinanced their loans through the program since its creation in October.

The bill would reduce the required minimum writedowns for servicers to participate to 93% of the home's current market value, from 90%. The bill also would reduce fees associated with the program.

A third bill, designed to provide protections for servicers conducting modifications by shielding them from investor suits, passed on voice vote.

The banking industry supported all three bills but is continuing its efforts to alter legislation that would let bankruptcy judges rework mortgages.

Among other things, the industry wants to ensure that losses on FHA mortgages and other government-backed loans are covered when the mortgages are crammed down.

Frank is working with House Judiciary Chairman John Conyers, D-Mich., to find a solution to the issue.

During the vote, Frank told Rep. Shelley Moore Capito, R-W.Va., that he would support her efforts to address FHA and other government-insured loans.

"FHA is going through a transformative time now, is now originating over one third of the loans being originated," Moore Capito said. "The fear is that HUD and others — and I share their concern — is that the low-income borrowers that are accessing FHA … will be subjected to higher premiums or a more lengthy process, because of the bankruptcy cramdown legislation."
Such issues raise "a caution flag" about whether the FHA "can meet the demands to modernize," she said.

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