Richard H. Baker

I thank the gentleman for the gracious yielding of time and do appreciate his good leadership in this area, as well as that of the gentleman from New York (Mr. Ackerman) and the gentleman from Pennsylvania (Mr. Kanjorski), and the entire New York delegation, which is understandably focused on the issue of how we best respond as a Federal Government to a tragic event of another terrorist assault on this great Nation.

I rise today not to be critical of the product but to say that we have moved far in our considerations. In the first response after 9/11, the first terrorism risk reinsurance proposal was only 3 years in duration, which was then extended for an additional 2-year term, without the inclusion of group life,

NBCR, and some of the other modifications now suggested as being appropriate.

I would point out that during that 5- to 6-year period after 9/11, contracts were entered into, loans were made by financial institutions and construction proceeded, only to make the point that having an absolute lifelong guarantee by the Federal taxpayer with any risk associated with a terrorist attack is not necessarily inherently a standard of operation which this Congress should consider.

Rather, as we go forward, as the chairman has indicated in the hearings of next year, we should strongly consider enabling companies to build up internal reserves specifically to addressing and responding to these types of horrific acts, without accounting consequence or tax liabilities, and enable them to build up appropriate reserves in their eye to meet the insured losses which they potentially could share.

There are alternatives to the plan currently in place, and we should reengage and have discussions on all of those alternatives. Some might find my position on this matter unusual, but I would say in facing the losses that we struggle with and continue to struggle with in the Gulf States, Louisiana and Mississippi alike, post Katrina and Rita, I still don't believe we can ask the taxpayers of this great country to pay off all of our losses in the event of a higher loss.

We should build higher standards and adjust rates in accordance with the risks identified, and we should be smart in the enterprise, enabling market forces to function. The same should be said with terrorism risk.

We should do all we can before we open taxpayers' checkbooks and write those big checks out when market function should be the first and appropriate response to any loss in the insurance world. So I stand in defense of the product, and I believe the 7-year term is more than adequate and echo the comments of my chairman on capital markets. We need to be careful before we move, and we certainly need to understand before we act.

I thank the gentleman for his courtesy. I shall try to be brief. I had hoped at the outset the bill would present a uniform national standard so all those engaged in this practice would have legal certainty as to the behavior that complies with the law, no matter where one might extend credit. Unfortunately, that is not the case in the underlying bill.

I had hoped more clarity in the provisions of enforceability. I am troubled by some of the unclear language, the way in which some descriptive phrases have been used, as in, for example, the anti- steering provision, which states that loan products which have predatory characteristics, one cannot be sure what constitutes a predatory characteristic. Third, in contract resolution, we had hoped that we would at least avail ourselves of mandatory arbitration, which is a common business practice to resolve differences without the court being involved. Unfortunately, the bill in its current form prohibits mandatory arbitration, which leads us then to the gentleman's very well-thought-out amendment relative to the safe harbor provision.

At least we should have the statement that if you engage in lending practices of a certain type, that there will be legal certainty you will not be sued at some future point for engaging in the honorable profession of extending credit to people trying to buy homes.

On that point, let me quickly add that 95 percent or more of the people engaged in this practice are honorable people, doing a public service, extending credit to people who pay their obligations on time. It is a mischaracterization on this floor to represent that all people engaged in the business of extending credit for this honorable purpose are up to no good. In fact, when foreclosures occur, it actually costs the industry business.

This is not a helpful environment. We would be legislating with certainty, and the bill in the underlying form does not provide that. The gentleman's amendment is excellent, well-constructed. I hope the House will favorably consider it.

Mr. Chairman, I move to strike the last word.

Mr. Chairman, I want to make clear my motivations here for the purposes of debate.

I certainly am in support of the Roskam amendment, but with or without its adoption, even the underlying bill, without the manager's amendment, is problematic. However, the manager's amendment presents an additional level of concern above those raised at the committee consideration.

Insurance is in the business of pricing risk, and I can honestly say as a Louisianan we are really adjusting in a significant way to the new risk now identified for our exposure along our coastal area.

Our legislature has responded with the adoption of a building code that really is leading the class in the United States, and to suggest that free markets should not price the risk and provide insurance where they know they will lose money is not a policy that makes a great deal of sense.

Hence, the underlying bill will provide a mechanism for the United States Treasury to provide a security backstop to the consortium that now is issuing insurance to Florida residents at a below-market rate.

I can recall in great detail the criticisms by many in this House by those of us in Louisiana who are the beneficiaries of a flood insurance program that provides coverage at a governmentally subsidized rate. For the record, I'm for raising those premiums on Louisiana citizens to get that program in actuarial soundness because I know without that the program is eventually doomed.

The underlying manager's amendment, although requiring risk-based capital, goes to great steps to avert the requirement, first by exempting companies who now exist from the consortium for the next 5 years. Secondly, there is no full faith and credit of the beneficiary State on the loan that's made by the United States taxpayer and virtually no guarantee of repayment.

Let's call this what it is. It is a way to provide stability in the Florida insurance market by accessing taxpayer money without guarantees of repayment. What can we do to improve this?

Well, the Roskam amendment now pending is at least the most meager step one should take who is concerned about proprietary action in the insurance world. It does not say the Treasury Secretary will establish the building codes. It merely says the Treasury will examine whether there are even codes in place that are reasonable for the risks that are presented to the occupants of low-lying coastal areas before you extend taxpayer assistance.

It's sort of like making sure that you've taken appropriate action to protect your family and that there's not a likelihood of probable loss, and then you're going to sell insurance on the assumption that the risk is low. In this case, rebuilding is taking place in low-lying areas at a rapid pace, and there is an absolute certainty there will be a repeat of significant storms and unquestioned amounts of loss.

At least we should say that those who are building in exposures of great risk should exercise the highest level of construction standards before having access to taxpayer money to pay off the loss.

Think about your constituents. How many times are we going to ask them to pay for the decisions of others to build in low-lying coastal areas when the coastal area residents themselves are not paying actuarial rates for coverage they are provided.

I wish I could say it more clearly, but this is not a balanced approach; and certainly without the Roskam amendment we are opening this Congress and the American taxpayer to enormous financial risk without taking the first meager steps for rational self-protection.

I urge the adoption of the Roskam amendment.

Mr. Chairman, I yield back my time.

I thank the gentleman for yielding.

Mr. Chairman, I just want to make sure I am understanding the effect of the gentleman's amendment properly. If I am a homeowner and I am paying a premium for my coverage and I have a loss, there generally is some sort of deductible, maybe $500 or $1,000, depends on what kind of policy I will have to buy. But I am going to have to put my premium money up, and then I am going to have to have a personal loss to get the benefit of the insurance coverage that I bought for my home.

What you are suggesting with this amendment is that the States who are going to avail themselves of the advantage of the Treasury extended loan are going to have to have their own money in the game. They can't just call up and say, Mr. Secretary, send me a few billion dollars. I am kind of short right now. They are going to have to have their own State losses in their own insurance pool before they can get access to the United States Treasury extension of credit; is that correct?

My point here is in speaking, in asking the gentleman the question, is it is absolutely essential, no matter what the government program or service, did you know, that whoever is the beneficiary always makes some contribution to his own well-being or else the program will run amok. There will be no reason to exercise constraint.

You are absolutely correct. Premiums charged will never be actuarially sound. The gentleman's amendment, which in my opinion is, by the way, insightful and articulate, has drafted a constructive amendment which I hope others will find beneficial.

Mr. Chairman, I move to strike the last word.

Mr. Chairman, I wish to make clear that my interest in this matter is based on my representation of a portion of coastal Louisiana, so I get the problem. And we are struggling, even today, 2 years after Katrina, in trying to restore our State to what it once used to be. So I do not come to the floor in opposition to this matter in a cavalier manner.

The statement that this bill is intended to keep the American taxpayers from being responsible financially for future natural disasters is in direct contravention with the effect of the bill, if it ever does become law.

Let's start with the basics. People didn't like the fact that some Louisianans built at the water's edge. How can we be more responsible and elevate structures and build them to a certain code?

I support Mr. Roskam's amendment, which provides that the Secretary of the Treasury, before making such a loan, shall certify that the recipient entity in question has such safe and sound building codes. Sounds logical to most taxpayers, I would think.

The pending amendment simply says that the recipient entity getting the benefit of the Treasury loan shall have its own money at risk, and shall have suffered some monetary loss.

One-in-100 event. Some have suggested this is just a number pulled out of the air. It is a typical actuarial number of risk used by the insurance industry in rating the likelihood of recovery of loss in policies nationwide. It's not something that one can say was simply grabbed out of the air.

The risk-based capital provisions in the manager's amendment are completely obliterated for the first 5 years for companies now in existence in the program who would qualify for such loans. And in the event a loan would be made, there's a specific prohibition that the full faith and credit of the State getting the benefit of the credit would not be placed on that note. Translation: they don't have to pay this back.

Now, the bigger point is that when you look at the applicability of where NATCAT, national catastrophe funds, would likely be made operational, Florida, yes, California, maybe, and ladies and gentlemen of the Congress, not anywhere else.

Our insurance commissioner in our State has carefully evaluated the advantages and possibility of a NATCAT structure being utilized in Louisiana. It will not work. The applicability of this program will be for a narrow, narrow slice of the insurance market at risk on coastal Louisiana.

There are much better ways to do this. But do not support this measure on the assumption that the American taxpayer will not be put at risk.

In fact, if you really dig into the bill, you find a little provision that says commercial residential may be covered if the Secretary of the Treasury determines that the benefits are appropriate, without any conditions as to the requirement, style, nature or manner of repayment. We're going to be taking care of Hilton and their golf courses.

Really, really take a careful look at this. I am troubled to be opposed to a bill that could potentially be beneficial to my own State and my own constituents. But I have arrived at the conclusion that this is not the right way to perform this task. And not enough careful thought from varied interests has been taken into consideration in this matter.

I urge you, please adopt the Roskam amendment.

I yield back the balance of my time.