To Our Clients, Colleagues and Friends:

· When Congress passed FDICIA in 1992, they required that when a bank failed, the Inspector General must issue a report identifying the causes of the failure and any losses to the FDIC. We don’t know how long it will take to do the report on Indymac, but it will be interesting reading.  Will they name Senator Schumer as part of the cause?

· Who gets the profits when large, financial institutions are profitable?  The shareholders.  Who takes the pain when they fail or are bailed-out?  Typically, it’s the taxpayer. As one analyst put it, we privatize the profits but socialize the risks.   What a clever (and accurate) phrase.

· Why Flagstar will be a survivor:  When we look at their liabilities, they have about $900 million in checking and savings accounts, and $5 billion in retail deposits v. only $950 million in wholesale deposits.  They also have the power of 171 branches that gather retail deposits every day.

· From Larry Bell at the Bank of Idaho: Another great pitching dual was the 1916 game between Brooklyn and Boston in which the starting pitchers both pitched complete games.  The game ended in a tie after 26 innings.  That is a game you would not see today.   

· Warehouse lender Guaranty Bank in Texas has just strengthened its balance sheet to the tune of $600 million.  They sold a combination of common stock, sub-debt, and preferred in a nice vote of confidence by the investment community.   

· Now that loan re-purchases have been hurting mortgage bankers for about a year now, have you analyzed yours?  Have you looked for patterns, such as certain branches being responsible for a disproportionate number of buybacks, or certain loan officers who had more than others? What we see when we’re onsite at clients is that a vastly disproportionate number of repurchases (and EPDs) come from wholesale. Not always, but almost always.

· You’ve read how bad things are in the Inland Empire of California, and Ontario (CA) is probably ground zero for the horrible real estate market there.  But headquartered right there in Ontario is CVB Financial, a $6.5 billion bank.  And what is their level of non-performing assets?  Is it 5%…. 4%……3%?  Not even close. It’s only 0.21% of assets, only one fifth of one percent.  Just because the economy is falling apart and everyone’s’ loans are going bad, CVB is proof that sound underwriting will always prevail.

· The conventional wisdom is that 3^rd party loans become non-performing loans two to three times more frequently than retail, and further, that loans outside of a bank’s footprint perform worse in general than those in their footprint.  Even further, loans to people who have deposit relationships with a bank outperform those who don’t.  This, good friends, is why so many banks are getting out of the TPO business.

· The BofA announced that Countrywide lost $2.33 billion in the second quarter. They also said that Bank of America would not guarantee Countrywide’s outstanding debt.  Holy cow! 

· We questioned last issue whether the Indymac employees laid off two weeks ago would get COBRA.  We found out that Indymac Federal Bank is offering COBRA through Blue Cross.   What a relief!  

· In the dumb name dept. we find Rurban Bank ( Ohio ).  Part rural, part urban, hence Rurban.

· People often think that Fair Isaac is much bigger than it really is.  They generated revenue of only $183 million for the just-completed quarter, which is, when you think about it, not all that much. Net income was just shy of $19 million.

· Did you notice that Wamu added 250,000 checking accounts last quarter alone? Does this matter? Heck, yeah.  Along with providing very cheap deposits, overdraft and related checking account fees generated $767 million in the 2^nd quarter alone.  Go back and read that last sentence. That’s $767 million in fees alone.  That’s also a lot of bounced checks.

· Paramount Equity Mortgage, ( Roseville , CA ) just had its Washington license revoked and was fined $500,000.  Ouch.  The state charged that Paramount engaged in deceptive lending practices, just one example being that they charged borrowers to buy down interest rates without actually reducing the rate. We’d never heard of or even thought of that one before.  It’s amazing what some people will do.  We assume regulators in other states where they operate will also investigate. Being clever is not the same as being smart.

See you next week. And if you’re not yet FHA approved, give us a call and we’ll take care of it for you.  It typically takes us about a week to do our part on the application, and FHA is now getting their approvals out in about 5-6 weeks.

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