To Our Clients, Colleagues and Friends:

· CEO Jamie Dimon of JP Morgan said that delinquencies on broker-originated loans are three times higher than on loans originated in-house.  We’ve heard first-hand from companies that tell us that 90% of their re-purchases came from their wholesale channel.  Is this true in your shop?  Do you find these numbers credible?

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· The Central Bank of England loaned money to Northern Rock, a major mortgage lender in the U.K. They are now threatening to nationalize the company if they aren’t repaid by March 27.  Can you imagine?  Can you imagine government officials trying to run one of our mortgage companies here in the United States ?  At least when the FDIC seizes a bank, they tend to liquidate it or sell it almost immediately.

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· Listed here are the top ten domestic banks ranked by assets

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· We wrote a few weeks ago about Countrywide’s paying so much more than prevailing rates for its CD’s and the circumstances in which the FDIC could disallow this.  Well, we looked up the latest CD rates in the WSJ.  On Wednesday Jan 16^th, Countrywide was paying 5.25% for a 6-month CD.  The National average was 3.73%.

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· One more example of globalization: The IndyMac announcement on layoffs notes that 300-400 of the job cuts will involve workers in India . 

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· One more example of globalization:  Remember when a so-called government bailout meant an industry turning to Washington , D.C. for financial help?  Funny how it now refers to the governments of Singapore , Kuwait , China and Abu Dhabi . Just ask Merrill Lynch, Morgan Stanley or Citigroup.  Those are the governments that bailed them out.  Not Washington .

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· From a reader: “Your note about Dick Stuart led me to look up his lifetime fielding statistics and compare them to Wes Parker, who played in approximately the same era  — the comparison pointed out just how bad a fielder Stuart was.  Parker’s career fielding percentage as a first baseman was .996 with 45 errors in about 1,100 games at first base; Stuart’s was .982 with 169 errors in about 1,000 games at first base.”

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· Mortgage banking company Taylor, Bean has entered into an agreement to buy a savings & loan. They’ll have access to more liquidity (deposits + Federal Home Loan Bank borrowings) and cheaper rates than their warehouse lines.  Smart people.  Very smart.

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But wait, is it that smart going into a business that’s so heavily regulated?  Our answer is pretty simple.  While many of regulations might drive you nuts occasionally, (a) they eventually become a part of your corporate culture (it’s called a culture of risk management and compliance), and (b) most regulatory oversight actually keeps you from doing things that might get you in trouble. How many mortgage bankers failed last year?  Now compare that to the number of banks & thrifts that failed?  We don’t know the number of mortgage companies that failed, but there have been only two bank failures we can think of in the past three years. 

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By the way, Taylor, Bean says the acquisition is not about liquidity. Our view is that when mortgage bankers say something is not about liquidity, it’s always about liquidity.

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· Someone recently asked Wells Fargo’s CFO, Howard Atkins, if Wells was interested in buying Washington Mutual.  Atkins response was that Wells is “… not interested in fixer-up transactions.”  How embarrassing, if only at the  highest levels at Wamu.

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· As most of you know, commercial real estate loans have been getting securitized for well over a decade now. That market had become so powerful that balance sheet loans (their term for what we call portfolio loans) had lost lots of market share.  Well, we just read an interesting WSJ article on how commercial mortgage securitizations have really been shrinking, and balance sheet lending is all the vogue again.  What was highlighted was that the underwriting is more conservative.  We like the discipline that comes with making loans for your own portfolio. You can decide to sell a loan sometime down the road, but if you make it like you’re going to own it – regardless of what you may do with it in the future – you’ll make better loans.

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· If you need help finding a new warehouse lender, we can help. We’ve done work for almost all of them, and we pretty much know what each is looking for and what their hot issues are.

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· One last bit of grammar, and then we’ll take a vacation from this dreary topic. This is a joke showing how one can mis-use a prepositional phrase:  A freshman gets off the bus at Dartmouth College and asks an upper classman, “Excuse me, but can you tell me where the freshman dorms are at?”  The Upper Classman responds, sneeringly, “At Dartmouth we never end a sentence with a prepositional phrase.”  The freshman responds,  “Oh, excuse me, can you tell me where the freshman dorms are at, asshole?”

Joe Garrett and Corky Watts  -  Garrett, Watts & Co.