Subject: File No. S7-12-11
From: Amy Sullivan-Greiner

May 26, 2011

I’m writing because my family and I were affected by the economic collapse of 2008, and we don’t want it to happen again.

It never made sense to me how any banker in their right mind would grant a mortgage loan, without verifying the income and credit rating of the borrower.  (That was certainly what I went through; I had to produce documentation of income & assets going back three years.)

Then I discovered that the banks making the loans were immediately selling that paper.  So of course, those banks had zero interest in the loans actually being repaid, or in being sure that the borrowers understood the loan they were taking out.  As a result, the "explanations" to borrowers became progressively more obfuscatory, and the documentation of income & assets became progressively less.  Every step of the way, the bankers took a cut for every loan, with no concern or fiduciary duty to either the true lenders who would be the ultimate owners of the paper, or the borrowers.

"Heads I win; tails you lose."

My own sister was sucked into this; largely by being convinced that she was much more financially sophisticated than is actually the case.  When she attempted to re-finance, the stalling tactics employed by the bank put her into foreclosure.  I'm still trying to figure out who gets a cut out of that.

It is my firm belief that the major correctives needed here are two:  Reinstitution of absolute separation of investment and commercial banking (e.g., Glass-Steigle,) and the requirement that any bank originating mortgages be required to hold those mortgages for a minimum of five years.

This would produce the following results:  Re-stabilization of the residential mortgage market, by removing the largely speculative 'investment' element to the commercial realm, benefiting the economy at large;  a natural adjustment of pay & bonuses, because the requirement to hold assets would produce a reality check on the quality of those assets, benefiting stockholders; an educational reality-check for the public, as being required to do the documentation of income & assets would provide a hard look at what a person can actually afford to pay for a mortgage.

One way to change the incentives so Wall Street doesn’t collapse our economy again would be for regulators to set up a way for shareholders to grab back ill-gotten gains.

If it turns out that the profits in a given year were built on shoddy practices that become clear in the out-years, those bonus payments should be forfeited.

Thank you for considering my comment,

Amy Sullivan-Greiner

El Cajon, CA