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60 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET LocaL edition House committee approves Bill to expedite large Firm Bankruptcies Bill would protect taxpayers in the event of a large scale failure. WASHINGTON D.C. // The House Judiciary Committee approved bipartisan legislation that is aimed at speeding up the bankruptcy process and prevent- ing taxpayers from taking the hit in the event of the failure of large financial institutions. The law, known as H.R. 5421, or the Financial Institution Bankruptcy Act of 2014, was approved by a voice vote in September. Under the new law, a subchapter added to Chapter 11 of the bankruptcy code requires large financial institutions to maintain trans- parency and creditor prior- ity. The bill was praised by Democrats and Republicans alike, including House Judiciary Committee Chairman Bob Goodlatte (R-Virginia), rank- ing member John Conyers (D-Michigan), and Regulatory Reform Subcommittee Chairman Spencer Bachus (R-Alabama). "We strongly support the committee's passage of the bipartisan Financial Institution Bankruptcy Act today," Goodlatte, Conyers, and Bachus said in a joint statement. "This bill was carefully calibrated to strengthen our nation's bank- ruptcy laws and to ensure that the bankruptcy process is well equipped to resolve companies of all operations and sizes. This legislation enhances the Bankruptcy Code and its ability to resolve financial institutions in an efficient and value-maxi- mizing manner for the benefit of the U.S. and global econo- mies, employees, creditors, and customers." Detractors of the new bill defend the Orderly Liquidation Authority, or OLA, which was the system set up by the Dodd-Frank Reform Act in 2010 to mitigate the risk of large financial firms that are fail- ing. Supporters of the Financial Institution Bankruptcy Act believe it is superior to OLA, arguing that OLA gives too much power to regulators and politicians in the case of a failing bank and, as a result, taxpayers would lose billions. OLA sup- porters say that it provides the necessary flexibility to quickly provide aid to big bank creditors to stop a crisis and that assess- ments placed on big banks after the crisis abates would cover any taxpayer money used. The backers of the Financial Institution Bankruptcy Act say it will expedite the bankruptcy process with a speedy judicial review and quicker transfer of assets from the bank to a bridge company that will attempt to save the institution without affecting the business's opera- tions. The committee's goal by passing the new legislation is to prevent a repeat of the lengthy and costly Lehman Brothers bankruptcy, which was filed in 2008 and is just now being completed. treasury Official Breaks down Private- label challenges reviving the pls market is a complicated task. WASHINGTON D.C. // As sec- ondary marketing analysts and participants debate over how to revive private-label activ- ity in a market dominated by government-sponsored enter- prises, one housing official at the U.S. Treasury Department says the system may be stuck in a catch-22 over agency ratings. Speaking at an event hosted by the Bipartisan Policy Center in Washington, D.C., Michael Stegman, counselor to the Treasury secretary for housing finance policy, explained that lenders are currently reluctant to make non-agency loans without first knowing how they'll rate on the market. At the same time, credit rating agencies don't rate mortgage pools until they see the actual loan tape. "The resulting stalemate means more diverse pools will not be brought to market," he said. The problem is just one in a series of what Stegman referred to as "chicken and the egg paradoxes"—separate problems that contribute to each other. As an example, Stegman gave the stance of the Federal Housing Finance Agency (FHFA), which has said it will not consider low- ering the conforming loan limits Fannie Mae and Freddie Mac can accept until it can be sure there is enough private capital to fill the gap in the market. Meanwhile, he said, securities issuers say the private-label seg- ment of the market won't be able to step in until the government shrinks its presence. Stegman also noted the "chicken and the egg" problem of securities issuers' reluctance to devote resources to help fix private-label structural problems "when the economics of mort- gage funding favor other forms of execution." "This type of short-sighted resource allocation will lengthen the time it takes to address critical investor confidence issues—insufficiency of repre- sentation and warranty enforce- ment mechanisms, opaqueness in servicing practices, and lack of transparency in data and disclosures—and inevitably delay the restart of the PLS market," he said. These issues come at a time when industry groups and lawmakers are working to push reform that would diminish or dissolve Fannie and Freddie,