Yesterday afternoon, against the backdrop of Citigroup's morning announcement that it has "approved $36.5 billion in initiatives backed by" the $45 billion of TARP capital it has received from Treasury, the House Financial Services Committee held its first hearing of the new Congress, entitled "Promoting Bank Liquidity and Lending Through Deposit Insurance, Hope for Homeowners, and other Enhancements." The hearing consisted of two panels of witnesses.

First panel:

  • John Bovenzi, Deputy to the Chairman and Chief Operating Officer, Federal Deposit Insurance Corporation
  • Meg Burns, Director of the Office of Single Family Program Development, U.S. Department of Housing and Urban Development  

Second panel:

In his opening remarks, Chairman Barney Frank (D-MA) emphasized that the focus of the hearing was foreclosure prevention, including enhancements to the Hope For Homeowners program (H4H), noting that the House Judiciary Committee was separately considering bankruptcy reform legislation that would give Bankruptcy judges authority to modify first mortgages. He also praised the Federal Reserve's recent adoption of a foreclosure avoidance policy covering loans owned or controlled by Reserve Banks. The hearing also addressed the FDIC's recent request for increased borrowing authority.

Ms. Burns acknowledged that H4H has been a disappointment, with only 451 applications and 25 loans made (none of which are FHA insured). Citing program costs and restrictions, she said ""The program restrictions have proven to be more and more difficult over time, as economic conditions worsen," and expressed concerns that "program standards that effectively shut out large numbers of families in trouble may only perpetuate the foreclosure crisis." The Committee is considering draft legislation that would reduce program participation standards, cut consumer costs, provide HUD with greater pricing flexibility and reduce the amount of losses that participating lenders would be required to absorb.

The Committee is also considering a bill provision that would make permanent the increase in FDIC deposit insurance coverage to $250,000. Mr. Bovenzi in his testimony stated that “Liquidity is a key component in returning the economy to a condition where it can support normal economic activity and future economic growth. ... Deposits, especially FDIC insured deposits, are a key source of bank liquidity. The FDIC has implemented the temporary liquidity guarantee program to help stabilize the funding structure of financial institutions and expand their funding base to support the extension of new credit.”