On January 27, Representative Barney Frank (Massachusetts) introduced H.R. 703 to promote bank liquidity and lending through changes to deposit insurance rules, changes to the HOPE for Homeowners (H4H) refinancing program, and other enhancements.
The bill permanently increases the amount of Federal Deposit Insurance Corporation (FDIC) deposit insurance to $250,000, which is currently set to return to $100,000 on December 31. The bill extends the effective window for Deposit Insurance Fund restoration plans from five years to eight years. The bill increases the FDIC borrowing authority from the U.S. Treasury Department from $30 billion to $100 billion, or amounts greater than $100 billion if the Boards of Directors of the FDIC and Treasury determine it is necessary. The bill also allows the FDIC to make assessments on not only insured depository institutions, but also on depository institution holding companies, for repayments of losses to the Depository Insurance Fund resulting from actions taken regarding systemic risk.
The bill makes several changes to H4H, including removing the debt-to-income ratio requirement, increasing the maximum loan-to-value ratio from 90% to 93% and removing the prohibition on new second liens. The bill also creates a servicer safe harbor that applies only to modifications, workouts or loss mitigation plans initiated before January 1, 2012. The safe harbor provides that any servicer that enters into a loan modification or workout plan with respect to a mortgage that meets the criteria of the rule is not liable to investors in residential loans or residential mortgage-backed securities, any trustees or other persons who make payments to such investors, or any insurers of those loans or securities. The servicer’s ability to modify the loans is not limited by any provision or law or contractual provision, and the servicer is not required to repurchase loans from or otherwise make payments to a securitization vehicle on account of a modification, workout or loss mitigation plan for mortgages that have been securitized, if they meet the following criteria: default in payment on the mortgage has occurred or is reasonably foreseeable, the property is owner-occupied, and the servicer reasonably and in good faith believes the anticipated recovery under the modification or workout plan will exceed, on a net present value basis, the anticipated recovery to be realized through foreclosure.
Finally, the bill mandates that Troubled Asset Relief Program funds be made available to smaller community financial institutions, including private ones, on comparable terms to other institutions.