To Our Clients, Colleagues and Friends:   

· There is an old saying that good judgment comes from experience, and experience comes from bad judgment.  Isn’t this totally applicable to the mortgage industry in 2007?   We ask again:  Have you had a serious meeting of senior management and/or the Board to discuss the lessons you learned in 2007? Such a meeting should lead to a document, however short, listing no more than 8-10 lessons learned and policies that you have changed (or need to change) as a result. Put in writing. If you don’t, it could be just another gab session.

· When we have polled our clients on the above, we’ve been pretty disappointed.  A majority of them have not had a formal meeting to discuss 2007. Friends, just do it.  Real companies, and successful ones, are continually going through self-assessments. 

· Many, many people got started in mortgage banking with a warehouse line from Bill Ridder and his team, and he’s kind of the Godfather of Warehouse Lending.  We remember when he started First Collateral with a little Apple computer, and, of course, the rest is history.  Bill is also a determined man who finishes what he starts.  Years and years ago he told people that he was working on his autobiography, the story of growing up in Holland during the Nazi occupation.  Well, the book was just published and we can’t wait to start it.  Its title is Countdown to Freedom.  Has there ever been a classier guy?

· A $3.9 billion condo/hotel project in Las Vegas was foreclosed on last week by construction lender Deutsche Bank.  That’s one heckuva big foreclosure.

· And how about NCAA Tournament participant Coppin State College ?  Their coach is named Fang Mitchell.  That’s one, cool name.

· Here’s something you really need to know:  You absolutely need to know your cost to originate.  If P = profit, then the formula is a super-simple Total Revenue per Loan – Cost = Profit.  R – C = P.  Isn’t this how every manufacturer runs his or her business?  “I have gross revenue of R when I sell my widgets, and it costs me C to manufacture one of them.  So my gross revenue minus my cost equals my profit.”  R - C = P.
We don’t want to embarrass anyone, but many of you don’t know these numbers.  Friends, how can you run a profitable business if you don’t know your cost?  You need to know these by product, by channel and probably even by branch.   We’ll be kind of harsh here and say that if someone doesn’t know these numbers, he probably shouldn’t be in the business.  Maybe he shouldn’t be in any business.

· Ronald Reagan said that government’s view of the economy is very simple: “If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.”  Funny.  A lot of what he said was over-simplified, but much of it had a ring of truth to it.

· If we were shopping around for a smaller bank to buy, we can’t imagine one more attractive than Temecula Valley Bank. It’s trading at 15% below book value, has a net interest margin of 5.4%, and is one of the top SBA lenders in the nation. And with a market cap of $92 million, it’s not too big to digest.  It’s not for sale, but we’d sure approach them.

· It shouldn’t be a surprise at all: Two union pension funds that own shares in Washington Mutual have proposed changes that would make the Bard more independent. Wamu’s management has opposed these moves in what we view as a knee-jerk and ill-advised reaction.  After all, it’s not like their current Board policies have worked so well.

· The dollar has fallen by the following percentages this year alone against currencies in the following countries:   -11.9% Czech Republic , -10.5% Slovakia , -8.5% Poland , -10.9% Japan , -12% Chile , and -10.2% Israel .  And can you believe that the Euro is now at $1.57? 

· A big part of Bear, Stearns’s demise was that investors lost confidence in them, and much of that was due to rumors.  Where there’s smoke, there’s usually fire, but sometimes there’s just someone with a smoke-making machine. So what will you do if there are rumors you’re your company might fail or was in deep trouble? It’s best to figure this out in advance, and a simple policy should be developed to deal with such things.  You need to designate one individual to respond and have a means of disseminating that message. It’s worth spending a bit of time on, and doing so now while you have the luxury of time.

· Today’s quiz: And who was it who used to say “Plunk your magic twanger” on national TV, causing millions of kids, mostly boys, to scream in frenzied delight?  Was it (a) Buster Brown  (b) Andy Devine (c)  Buffalo Bob  (d) Gabby Hayes or (e) Captain Kangaroo?  There will be bonus points for those who can explain why those 7-8 year boys thought it so funny to be told to “plunk their magic twanger.”  

The assignment for this week is to figure out your Cost-to-Originate.  Let us know what you come up with.

Corky Watts and Joe Garrett  -  Garrett, Watts & Co