Pubic comment by Diana Danin in response to Federal Register: October
16, 2008 (volume 73, Number 201) regarding development of a Guarantee
Program for Troubled Assets.

I've been a business and personal banker for over thirty years. My
Grandparents lived through and survived the great depression. I grew up
in their home and thankfully grew up with a depression era mentality
that you don't spend what you don't have and you only borrow to buy a
house or a car.

But over the last thirty years, I have watched my industry be taken over
by greed. The shareholders and board of directors always beating us down
to produce a greater return on assets.

I remember very clearly being invited to a luncheon with the CEO, Bill
Knowles, at NatWest Bank in the 80's, when I was in my early 20's. The
bank had just come out with the home equity line of credit, a brand new
product. And when I was asked by Mr. Knowles what I thought about this
'wonderful' new product, I responded..."Oh, you mean the product with no
social conscience!". I believed it then and I believe it now.

Credit underwriting has virtually gone away. But you already know that.
The industries greed, and the greed of every individual who thought they
could get something for nothing, has created a situation that goes well
beyond my ability to understand. But I will write these comments to the
proposal because (1) it is my right to be heard in this wonderful
democracy we have established in our United States and (2) I chose to at
least try to be part of the solution.

I think you (we) have no choice but to 'bail out' a system that has
failed. But as we do so, we must set into place regulations that will
prohibit banks and other lenders from making loans with undue risk. We
need to go back to the basics. And unfortunately, that will mean that
people of all races, creeds and ethnic backgrounds that do not have
income to support their borrowing requests, will have to be denied
credit if it means they can't afford to repay the loan. We need to
incorporate the fundamental five C's of credit: Character, Capacity,
Cash Flow, Collateral, Credit Worthiness.

If, at some point in the future, the government wants to subsidize loans
to lower income people, let that be something they investigate and set
into action, outside of the banking industry. The government can no
longer pressure banks into "equal opportunity lending" that merely means
make a loan to any unworthy lout that asks for it. Let each bank
contribute some of their earning to a fund to go towards those types of
loans and cover them under a separate guarantee by the government (sort
of like SBA is doing). But them them be applied for directly through the
government entity controlling the fund, not through the banks.
Participation could be mandatory for CRA credit. But at least each bank
will know how much they have in higher risk loan participation and it
won't be counted against them later on.

How are banks operating currently. I think you will not be surprised But
here are things I witnessed, this week alone, in job as a banker:

Scenario 1: I was asked to put in an application for a credit card. The
customer didn't have an opportunity to select an amount that they wanted
to apply for. Rather, the credit underwriting 'machine' -- through a
scoring system, selected it for her. You just put in the following:

a\. Name, address and social security number

b\. "Household Income"..... not this individual's income, mind you. But
household income which in this case was \$125,000. This amount was
unsupported by any form of tax return. The loan was not co-signed by the
earner of the household. And, in fact, the applicant did not even have a
job.

c\. Value of home and mortgage payment... both were zero since the house
and mortgage are in the husbands name.

The approval came back at \$26,000 line of credit granted based on just
this limited information and no credit underwriting. I'm sure this
client would have been happy with a \$3000 or \$5000 line, but she was
given a \$26,000 line.

Scenario 2: My daughter is a graduate student in school. She makes about
\$20,000 a year in a part time job. She is self supporting, bless her
heart. She has no debt because her brains got her a scholarship to
undergraduate school and she got a free ride, bless her heart.

Her first car was a clunker for \$2000. (I sold it to her and made her
pay me for it. I don't give kids a car. They need to WORK for it.) After
several years, it died.

I told her I would help her buy another car. She came up with \$4000. I
put in \$5000. And she took out a new car loan through Toyota for
\$8000. I asked her if she needed me to co-sign the loan for her. (After
all, she saved me about \$120,000 over the last four years with her
scholarship). She went to the dealership and they said she didn't need a
co-signer. Her credit was good and she was putting down a big chunk on
the downpayment.

Stupid, stupid, stupid. Okay, maybe the value would be there IF they had
to repossess it. But a loan is only good on the day you make it. Her
character is good. Her credit is good. Her capacity to repay is
questionable. The fact is, I am making those monthly payments for her. I
was willing to cosign the loan. The car dealership said "NO".

It calls into question every other car loan that is being made these
days. If you want to get us geared up to release only hybrids to
conserve fuel....well, here is how you do it.

Order all the car manufacturers to only be able to sell hybrids after
2012. You will create a blip in the auto industry for a couple years
during 2010 to 2012. But you will solve THAT problem because you will
require all banks and other lenders to actually qualify new car
purchasers for credit. They will have to see tax returns and they will
have to have a 20% downpayment. The default rate on these loans will be
reduced. And those that don't qualify for a new car will have to buy a
used car. Oh my goodness, what a nightmare. Not every Tom, Dick or Harry
will be able to have four cars in their driveway and new, big expensive
cars, at that. Those that have not reached the stage in life where they
could afford a \$30,000+ car, will have to buy a used car. Let it be
known that while I raised my two girls, virtually on my own, and earned
in excess of \$80,000 a year, I drove my 1989 Honda Civic from then
until 2006, when I earned the right to purchase a new car. I am a white
middle class American and I did not feel entitled to have a new car
every three or four years. And I had to make personal choices about how
I would spend or save my money and buying a new car did not factor into
that.

And perhaps the world will have to slow down. No more car loan approvals
in 20 seconds. Yes, the buyer will actually have some time to consider
the ramifications of their purchase on their budget. And the banks that
are reviewing these loans won't be able to use a credit scoring process.
Someone, perhaps a newly hired person (job creation can be good) will be
reviewing the loan documentation and actually qualifying the borrower.

And the government should tell the banks that they are bailing out that
they MUST comply with new underwriting criteria or they will NOT get
bailed out. We can't bail them out today unless we close the holes in
the process or we will find ourselves bailing them out AGAIN tomorrow.

And there's still room for Wall Street in all of this. Because these
portfolios of loans that the banks and other lenders are making should
be viable loans with relatively low charge-offs. Have them reserve for a
reasonable percentage for loan losses and they can still package these
portfolios of loans and sell them to John Q Public. But this time, that
security will have some level of safety. And the asset quality can be
reviewed and rated by a government agency so that the investor has some
idea of what they are putting their hard earned money into.

Go back to the old basics on mortgages. A minimum of 20% down. And on
top of the 20% down, they have to have the necessary closing costs,
already in the bank. If everyone lends under the same criteria, the
public will get used to it. When I bought my first house, I had to have
20% down and closing costs. And I could not take out a home equity line
to finance the closing costs, making my stake in the deal less than the
20%.

Home ownership is NOT a god given right. There is no part of our
wonderful constitution that says, "every person in the United States is
entitled to own a home". What it says is that every person in the United
States has a right to work hard, save money, make sacrifices (no you
can't spend all your earnings at the mall on the weekends and still
expect to someday own a home) and you can EARN the right to have your
own home.

One of the beautiful things about Fannymae and Freddie Mac was that they
allowed banks to "fix the rate" for new home buyers. There was a
reasonable level of expectation that the unforeseen would happen,
someone would get sick or lose their job, and some economist can
guesstimate what the foreclosure rate would be. The assets were not
terribly over leveraged, allowing for a reasonable downturn the housing
market prices such that the loan would still be secured.

The design of this process was excellent. It was the execution or lack
of accountability that failed. You see, when a commercial bank looks at
a business loan, they actually look at the business's receivables and
they look for two things: First and foremost, DIVERSIFICATION. A bank
will not lend to a client that has too many eggs in one basket. The risk
is just too high. We leave that type of lending to the factors and other
forms of financing. And the second is the quality of the receivable,
although typically banks do not delve into the credit quality of the
underlying receivable in normal conventional small business financing.

What failed in this system, in my opinion, is that the banks had too
many of the depositors eggs invested in one type of asset: Mortgages.
Fannymae and Freddie Mac were designed to take those items OFF the banks
balance sheet. But instead, the banks took their capital and invested it
BACK into the 'government backed or quasi government backed securities'.
Yes, the Fannie Mae and Freddie Mac mortgage backed securities that they
just sold to them. They sold it with one hand and bought it back with
the other.

I reviewed the balance sheets of the top ten banks in this country and
every single one of them would have been closed down if the government
did not step in and guarantee payment on the Fannie Mae and Freddie Mac
bonds. Because there was too much of that paper on the banks balance
sheets. If these assets had been allowed to decline in value, the banks
would have gone under. So clearly, the governments choice to prevent
this from happening was a necessary evil.

But the banks greed got them in even deeper trouble. They decided they
didn't like the reasonable return on the bonds, so they kept a
significant amount of the mortgages on their balance sheet as well.
Again, the greed factor. Why sell them and earn a measley 5% when we can
keep them and earn 11%.

They did not follow their own rules for lending: the need for
diversification of assets.

Scenario 3: The final scenario that I'd like to point out is a business
line of credit that was deemed credit worthy but was granted with the
following interest rate structure. A fixed rate of prime (not variable)
for the first year. 4.5% interest. After a year, the rate will
automatically change to a variable rate of Prime + 6%.

First, this smacks of the same horribleness the banks did with the
mortgages. Lend at a low rate today, and screw the borrower tomorrow. We
cannot allow this to happen. And since we are now bailing them out, we
have some leverage to set in place the rules of the game to protect the
consumer and the business owner.

I do not see things loosening up over the next year. Rather, I think
times will get harder before they get easier. So at the very point in
time where this business owner is facing a need for financial
tightening, the bank will be sticking the screws to him. But the
business owner today is just trying to make it through and he will
accept these terms if the government does not do something to protect
him.

The 'talking points' ..... which is now the newest phraseology used in
the banking industry (which means to me the bullshit that I, as a bank
employee is supposed to spew out to convince the customer that we aren't
screwing him over), is this: If the customer is still credit worthy a
year from now, we will re-evaluate the loan, including his rate, and
renegotiate at that time. Do YOU believe that. Because, quite frankly, I
do not. Over the last thirty years, I granted loans with terms that the
customer could live with. If prime + 6% was the amount the customer had
to pay, and could afford to pay.... Today and projected out five years
based on reasonable expectations of rising rates, then that is what we
committed to. Typically, the only way a client was able to lower his
rate, was by going to another bank. There were exceptions in rare
instances.

So what have the bank learned from all of this. Based on my three small
examples, NOTHING.

1.  They still grant excessive credit to individuals without any form of
    credit underwriting.

2.  They are still offering the "bait" of low rates, with the intention
    of hurting the borrower in a year

3.  They are still not verifying the individual's capacity to repay when
    granting credit.

One final point. I cannot tell you how many times in my career I have
been approached for a business loan or a mortgage and asked for tax
returns. When I got the business and personal tax returns I would see
something like the following:

a.  On the business return, there would be a minimum salary like
    \$20,000. And after expenses, there would be no substantial S-Corp
    income, and not because of any large depreciation numbers either.

b.  The same business owner would present me with a personal tax return
    that reflected mortgage interest of \$12,000 a year.

Now what reasonable person in the IRS believes for one minute that that
business owner was able to own a home for \$350,000 on an income of
\$20,000, with \$12,000 of it going to pay interest on a mortgage. Where
is the IRS in this equation? It cannot be that hard to marry up the
business and personal tax returns of these business owners. It is time
for everyone to contribute their fair share to our tax base. So let the
IRS hire more people and nail the business owners who refuse to pay
taxes to the wall. Take over their houses, let them stay there and pay
rent, but not be able to own the house until they have made up what they
cheated the government out of. And let the government reap the rewards
of any appreciation in that asset. That, my friend, will end the
cheating.

This process will give the government an opportunity to create even more
jobs.

Okay, now that I've shared by general opinion, which is that the banks
will not change or do the right thing unless and until it is controlled
by regulations. Let me address, to the best of my limited ability, the
questions you put forth in your request for comments.

1.  What are the key issues Treasury should address in establishing the
    guarantee program for troubled assets?

The key issue, from my perspective, is that the one with the money gets
to make the rules. It is at the core of our democracy. And we need to
make rules that the banks will have to follow to prevent them from doing
this again.

a.  Right now people can opt out of receiving "pre-approved" credit card
    applications. Stop all banks from being able to send this stuff out.
    If people need credit, there are banks on every corner they can go
    walk into. We will also save a lot of trees since the majority of us
    throw this stuff away. While that might sound unconstitutional, we
    can still require the bank to only send out pre-approvals to those
    that have "opted in".

b.  Require an old fashioned underwriting system. Get rid of all 'credit
    scoring systems' currently used by banks. This will lower the
    charge-off's of loans. And it will create more jobs by the banks.
    And it will manage the expectation on John Q Public on what they can
    expect to spend.

The second key issue is that the bailout can NOT benefit the
shareholders of the banks until all funds have been recouped by the
government (which really means the taxpayers).

1.  Insurance against loans, in my opinion, is not the way to go. The
    banks have to be required to manage their losses as they did in the
    past; through stringently adhered to credit qualifications. It
    works. But we need to accept the fact that not everyone qualifies
    for a loan. And until we do that, the qualified borrowers will be
    paying the price for the unqualified borrowers. Remember, the banks
    don't actually PAY anything for the insurance. They just pass that
    cost on to their depositors, the public and the qualified borrowers.
    This cannot be allowed to happen.

2.  See above

    1.  What are the key issues to consider with respect to guaranteeing
        whole first mortages?

> Okay, I know I am simplifying this and I am sure that it is actually
> much more complicated. But let's see if I understand this.
>
> There are three or four traunches of loans: The good, the bad, the
> very bad and the ugly.
>
> First, we have to identify which one are which and where they are. The
> boys on wall street are experts at this. If you are going to bail out
> Goldman Sachs, then let them set up a group of volunteers that can
> implement this program. They had or have entire teams of people that
> did nothing else but look at mortgage loan portfolios and rate them
> for risk. We need to put like kinds in the same baskets. It might be
> complicated, but I think it will be worth our effort. You can't
> reasonably be expected to know what we need to protect or guarantee or
> secure, until you know the extent of the risk.
>
> And since the investment banks significantly contributed to this
> problem, they should be held responsible for contributing to the
> solution.
>
> Once we know which loans are the scariest, the bailout fund can
> guarantee these loans. But to make them more viable, we need to
> restructure them to give them a better opportunity to be paid. This
> equates to giving the homeowner a better chance of staying in their
> house. The bonds have a maturity date. Extend it by five or seven
> years. And lower the rate that will be paid on the bond, slightly.
>
> The bond holders have a choice here. Take a smaller loss, spread out
> over many, or lose your whole investment. I think they would prefer
> the former.
>
> On those mortgages that were granted at a fixed rate that converted to
> a ridiculous variable rate, we need to modify those mortgages. First,
> suspend all interest payments for a year. Tell each homeowner that
> every payment made will go directly to principal with the interest
> forgiven.
>
> If you need to reduce the principal, then do that as well. Break the
> bonds representing those mortgages into two payment traunches. The
> first will be the actual value of the home with a fixed rate of
> interest for twenty years (under the modifications). By the way, if we
> are reducing the principal significantly and the rate is being fixed,
> the borrower should not need a thirty year mortgage and it would be
> totally reasonable to expect the modification to be for twenty years.
>
> But while the home owner won't lose their house, they also will not
> benefit from future appreciation until the government has recouped the
> write off. Take the difference between the value of the original
> mortgage and the value of the modified loan (essentially the
> depreciation of the asset since it was purchased), and put that into a
> second traunch. Those bonds will only start to be repaid after 15
> years. And hopefully, over that fifteen years, the value of the home
> will start to appreciate again. If the home is sold, any appreciation
> will be paid to the bond fund. The owner would still be able to
> develop equity in their home based on the payments they make on the
> loan.
>
> In the end, the guarantee is really represented by the value of the
> bonds at inception. If it happens that over the next twenty years
> those bonds recoup the value through appreciation of the underlying
> assets, then the ultimate cost to the taxpayers is reduced by that
> amount.

2.  What are the key issues to consider with respect to guaranteeing
    HELOCs and other junior liens?

So not only did the banks finance new purchases at 100% of purchase
price and at rates that the borrower could not be reasonably expected to
meet. In addition, they allowed, no encouraged people that owned their
home and had built up 'fake' equity, to refinance those mortgages
through either first mortgages or through home equity lines.

The question is this: What did the homeowner do with the equity they
pulled out of their home? This group went into the transaction with
quite a bit more information than the poor schmucks who were sold new
purchase mortgages and I think they should be treated differently.

They took that cash and they benefited from it. They paid off their
credit cards, or bought a new car, or paid for kids college or
something. They had a reasonable expectation to repay that loan and they
really have no right now to ask to be forgiven because the value of
their asset went down.

But we still have to contend with these loan losses as an industry and
as a country.

Typically, the equity line is an "interest only" loan. They need to
continue to make payments on this line. The rate is typically set at or
around prime, so the rate is relatively low. If it was part of the 100%
financing, then let it be part of the mortgage modification discussed
above.

What we can't do is just absolve everyone of their responsibility here.
If they took equity out of their home and they spend it, then they had
some financial gain. They should have their lines frozen and converted
into a thirty year term loan for the purpose of repaying principal.
Perhaps, provide twelve months of no principal payment, that can be
elected by the homeowner over the term of the loan that will not be
subject to late fees or derogatory reports to the credit bureaus. Have
the banks segregate these loans into a special category on their balance
sheet with relaxed requirements for loan loss provisioning. Instead of
the banks borrowing from Fed or another bank to make new loans, this
category would reduce their borrowing capacity. The banks that behaved
the least responsibly with respect to this asset category, will suffer
the most, as it will reduce their ability to bring in more money until
they work through this asset deterioration. Let the banks collect
interest at prime, but require them to apply a portion of that interest
to principal. So if prime is 4.5% and the fed discount rate is 1.5%,
then 3% of each monthly payment goes to principal. They will have
non-performing assets on their books for awhile and it will reduce their
profitability.

Too bad for them!!!!

7.  The key to setting premiums is to ensure that the cost of this is
    NOT passed on to the general population so that the banks get to
    earn the same or greater income.

The banks balance sheet is going to have to change. It will have to
segregate assets that have been modified. It will have to segregate home
equity lines that have been modified. It will have to clearly identify
those amounts that have been 'forgiven' and that are under the
protection of the bailout program.

Perhaps the bank will have to pay a premium on category three, to obtain
the guarantee for that amount.

Thinking it through, if we allow them to transfer those amounts to a
newly created government entity, off their balance sheet, we are freeing
up funds (deposits) that they can lend out. They would have had to
attract those new deposits to have the same effect, and those deposits
would have come at a 'cost' in the form of interest. So it would not be
unreasonable to charge those banks the same percentage that they would
have paid to their depositors which is about 1.5% to 1.75%.

This cost will be their "cost of funds" the same as it is now. And they
will continue to earn the difference between this and the loan rates
they charge on the new loans.

8.  Payment of premiums should be based on the percentage of new loans
    issued under the new credit quality guidelines. The more loans they
    make, the more money they are making and the more they should pay.
    First in, first out is appropriate term here. If they transfer those
    assets over to the new government entity, then each loan they make
    under the new credit underwriting criteria (be it a new mortgage,
    credit card, business loan, etc) should be marked as such on their
    balance sheet until all funds that have been guaranteed have been
    re-lent.

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1.  I think there is no way to avoid individually analyzing assets. It
    is a great task, but Wall Street is already set up for that. In
    fact, Sally Mae purchased a company in New York call GRP that did
    exactly this kind of work. I'm sure they have nothing better to do
    now than to help you with this task.

2.  I'm sure there are many legal, accounting and regulatory issues that
    this program will raise. And I'm sure you have experts to deal with
    these issues.

5 I think we need to make sure that the smaller community banks are
included in the program. They are invaluable to providing alternative
sources of financial services and loans to their communities. We can't
just bail out the big boys.

1.  I don't think the banks and brokerage houses are in any position to
    dictate the terms of the generosity of this program. Don't ask
    them.... tell them. They should not be given a choice in how they
    participate in the program. And if they resist, discontinue their
    FDIC insurance and notify the public and it will be only a couple
    days until the appropriate regulating authority can put them into
    receivership and implement the necessary changes.

I am a patriotic US citizen. I am not overly personally affected by the
turmoil we find ourselves in, although I find that I am often feeling
overwhelming sadness. I have no debt. I have money in the bank. I have
my 401K plan in cash for the last five years. I have a reasonable level
of income and if I lost my job, I'd find another one. Perhaps not with
the same salary, but I can simplify my life if need be.

I am proud of our country and support our constitution. I hear the
rumblings of fear that this process is changing us from a democratic to
a socialist country. But difficult times require difficult decisions.
And not everyone can benefit. Someone, and in this case, lots of people
will be affected by this. It has to be a part of a bigger change or it
will not work. We need to bring business back into our country. We need
to create jobs. We need to keep people off welfare and unemployment. We
also need to continue to support other causes which I am sick of hearing
being called pork barrel clauses. But we need to do those functions with
more honesty and integrity on separate bills and not as tag ons.

In the last great depression there were really only two classes of
people: the rich and the poor. People had lower expectations of what
they were able to have. But over the last 70 years we created a middle
class, and I think it is now a group struggling to be middle class. The
lines will be redrawn as we go through this process. The middle class
will have to shrink and more of us will just have to accept that we are
not as affluent as we thought we were. It will be a hard but valuable
lesson. But we still have our freedoms to be proud of and this process
does not change that. We are the land of the free. Free to work hard and
be rewarded commensurately.

I would welcome the opportunity to assist in this process in any way you
think would be helpful. I genuinely want to be part of the solution and
I want to be able to answer proudly, once again, when someone asks me
what I do for a living. I want to be able to say that I am a banker!!!