To Our Clients, Colleagues and Friends,

• We got lots of mail on our comment that the whole mortgage mess really got going when originators got borrowers to lie about their income.  About 75-80% supported our position.  Our view is that just because a store has a sign saying their shoplifting cameras are temporarily not working, it doesn’t make it legal to shoplift there.  Yes, there were many enablers along the food chain, but there were reps and warrants about the accuracy of income.  Lying is lying, and a wink and a nod don’t make it legal. And we’re not talking of fudging someone’s income by 3-4%.   Ethical people will always find a way to avoid breaking the law.  Enough said on the matter.

• In answer to a question on getting your branches FHA approved: If you’re an FHA originator and you want to get your branches approved, you must have a net worth of at least $63,000 with an additional net worth of $25,000 for each registered branch office.  There’s also a $300 registration fee for each branch.

• We’re pretty addicted to American Banker, the daily newspaper that covers all aspects of banking, including mortgages.  The interesting thing is that it has been published continuously since 1836.  We wonder if they have archives that go back that far.  The 1830’s was when Andrew Jackson was attacking the banks, so it would be fascinating to read old issues from that era.  By the way, when, Wachovia or Wamu cease to exist, does American Banker lose hundreds or thousands of subscriptions?  It’s an expensive newspaper to subscribe to, but worth every penny.
• Did you notice that Farmer Mac, the FNMA of agricultural loans, has seen its stock drop 87% just since Fannie and Freddie were taken over?  And it’s not due to bad loans.  In fact of their $9 billion portfolio of farm loans, only $8 million is 90 days delinquent.  That’s not even 10 basis points! Their stock is down because they were holding in their investment portfolio Lehman bonds and Fannie Mae preferred, both of which are now worthless.
• A new contest seems to be going around, guessing at upcoming mergers:  One such possibility is that Hale Business Systems, Mary Kay Cosmetics, Fuller Brush, and chemical maker W. R. Grace Co. will potentially merge and become: Hale, Mary, Fuller, Grace.  Someone sent us a dozen or so such combos.  All very funny.
• For our few Pittsburg clients, here’s our All-Tme Pirates team: Bill Mazeroski (2b) Honus Wagner (ss), Willie Stargell (1b), Pie Traynor (3rd), Smokey Burgess (c), Ralph Kiner and Roberto Clemente (of), and we’re kind of stuck on the 3^rd outfielder.  We’ll go with Elroy Face for reliever, but we’ll also take your suggestions as to their starting pitchers. And the third outfielder.
• Last time we had a banking crises, the not-so funny joke was that F.D.I.C. stood for Forever Demanding Increased Capital.  READ THIS.  We’ve been preaching for years to our clients that banks and mortgage bankers should increase capital and increase their liquidity. 
• Dave Bonocorrso of Keefe, Bruyette points out that the following all happened in the 3^rd quarter: The quarter began with (1) the FDIC seizing Indymac Bancorp on July 11, (2) Fannie Mae and Freddie Mac were placed into government conservatorship, (3) Lehman Brothers filed for Bankruptcy, (4) Merrill Lynch announced that it would be acquired by Bank of America, (5) the U.S. government loaned AIG $85 billion to stay afloat, (6) Washington Mutual became the largest U.S. bank failure ever (7) Wachovia’s banking operations were sold to Citigroup.  And (8) our top two investment banks, Goldman Sachs and Morgan Stanley, became bank holding companies.  Good riddance to a truly horrible quarter.  Someday, our grandchildren will ask us about this piece of history we’ve been witnessing.
• Huge homebuilder D.R. Horton has been conducting a fire-sale on lots and land. Two weeks ago they sold 2,000 lots in Desert Hot Springs (CA) for a bit under $8 million (or $3,900 per lot).  It’s estimated that they originally paid about $110 million ($54,000 per lot).  That’s roughly a 93% loss. Oh, and that was after they paid big money to put in roads and sewers.
• We’ve picked on Oakland Mayor Ron Dellums quite a bit lately for his absurd views on crime, but we have an idea on how he can resurrect his image as a crime fighter and an anti-terrorist:  Move Al Qaeda to East Oakland and drop them off somewhere on East 14^th Street on a Friday night.  They won’t survive the weekend. 

Have you told your warehouse lenders how much you love them lately?  You should be sending them regular reports, above and beyond what they require.  Their bosses are nervous, so they’re probably nervous.  Don’t let them worry about you, and don’t ever let them be caught off-guard with some surprise out of nowhere. Now, more than ever, you need extra communication with them.

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

510-469-8633 or 408-395-5504 

© 2008 Garrett, Watts & Co. The content in this email cannot be copied or used in any way without our written approval. It may be forwarded to others, but without any changes whatsoever, and it may never be sent out as another company’s or person’s newsletter.