Federal Deposit
Insurance Corporation

Lake Elmo Bank

From: Dan Raleigh 
Sent: Friday, March 02, 2007 3:16 PM
To: Comments
Subject: Statement on Sub-prime Mortgage Lending.

To whom it May Concern,

        "The agencies request comment on all aspects of the proposed statement and are particularly interested in public comment about whether: 1) these arrangements always present inappropriate risks to institutions and consumers, or the extent to which they can be appropriate under some circumstances; 2) the proposed statement would unduly restrict existing sub-prime borrowers' ability to refinance their loans; 3) other forms of credit are available that would not present the risk of payment shock; 4) the principles of the proposed statement should be applied beyond the sub-prime ARM market; and 5) an institution's limiting of prepayment penalties to the initial fixed-rate period would assist consumers by providing them sufficient time to assess and act on their mortgage needs. "

These are my comments in regards to your request:

        1) Sub-prime lending has a place in our market, however it is irresponsible to have qualifying standards which make repayment impossible.  This may be happening in "prime" lending as well.  The loosening of credit criteria has been happening without being tested base on a 10 year boom in the real estate market.  Debt to Income ratios need to be the compensating factor in sub-prime lending.  There is too much weight put on appraisal values.

        2) Recent decline (or non-appreciation) in real estate values will hurt the borrower's ability to refinance more than changing regulations regarding sub-prime lending.

        3) Payment shock can be prevented by qualifying borrowers on expected rates, while allowing them to take the risk of a variable rate.  Borrowers who qualify under traditional Debt to Income ratios, will be able to absorb rate increases.  Borrowers can't absorb small increases in payment or unexpected expenses of any kind, with the un-tested ratios which are being used today.

        4) I agree with this statement as stated above.

        5) pre-payments don't appear to help or hurt consumers in this area.

        Absolutely the most important item not requested is the avoidance of trying to educate borrowers through loan documentation.  They simply do not read the paper work.  It is not feasible or probable that any borrower could read the required documents at closing.

        Borrowers who become over extended are relying on the bank to give them guidance on what they can afford.  Excessive debt to income ratios will become obvious and should be corrected by underwriters.  Community banks, regulators, and tax payers should not have financial expense due to irresponsible lending practices of Fannie Mae and Freddie Mac.

Daniel D Raleigh
President/CEO
Lake Elmo Bank