To Our Clients, Colleagues and Friends,

· Our Northwest Client Appreciation Dinner this past week in Portland was terrific.  The best people in the world.  And survivors all.  What we enjoyed most was the interaction.  The two of us spoke briefly, but we had everyone getting up and sharing ideas on what was working and what wasn’t.  It can be lonely and dangerous out there these days, and it was really good seeing people exchange business cards and hear them say, simply, “Let’s get together soon.”

· In February 1933, in the darkest days of the Depression, Iowa became the first state to enact a foreclosure moratorium. Over the next year or so, 27 states passed laws to limit or halt foreclosures.  It would be interesting to study what effect they had on the overall real estate crash of that era.

· When borrowers stop paying their mortgage, the servicer still has to forward the payment, out of its own pocket, to the investor.  They get reimbursed when the home is foreclosed on and sold.  So the 90-day moratorium will require extra cash from servicers everywhere, presumably three additional payments worth.  That’s not a problem if you’re Wells Fargo, but what if you’re a smaller servicer?  This will put a great strain on your cash resources.

· Federal Housing Finance Agency Director James Lockhart, said the $100 billion credit lines held at the Treasury Department for Fannie and Freddie amount to an “explicit”  guarantee of existing and future debt issued by the GSEs. Later in the day, his agency said “effective” would be a better adjective than “explicit.” This is absurd, just like the belief the previous 30+ years that the federal government guaranteed FNMA debt.  Everyone said it, everyone believed it, but you couldn’t find a single document that proved it.  If this is what Congress or the Administration wants, they should write it into law.

· What was it like before the designated hitter?   In 1968, Oakland A’s pitcher Catfish Hunter threw a perfect game.  Okay.  But he also got three hits and drove in three of the A’s four runs.  Sweet.

· On average, stock prices have been moving higher on announcement of access to TARP capital. Stock prices gained 6% on average with the announcement of access to a capital infusion from the Treasury.  Interesting. 

· Year-to-date through Sept. 30^th,  the amount of equity taken out by homeowners fell by about half from the same period last year, to $99 billion.  If nothing else were going on, this alone could be recessionary. Consumer spending was fueled in large part by all the cash-out refinancing the past several years, and that’s just not happening anymore.

· Ever wonder how people measure the price of hotels?  After looking at discount rates and cash flows, investors look at the dollars per rentable room or per key. Manhattan hotels in 2008 have gone for an average of $393,000 per room, and Starwood is selling two of its “W” hotels there for about $490,000 per room.  For that amount of money, the new owner can now afford to turn on the lights.

· Unbelievably, Winston Churchill was defeated two months after victory over Hitler but before victory over Japan .  He accepted it graciously, saying that if one goes into public service,  “…. neither look for nor expect gratitude, but simply get comfort out of the belief that the effort is constructive.”

In his last address to Parliament, he asked his fellow countrymen to “Never flinch, never weary, and never despair.  No matter how bleak the forecast, courage will carry us forward.”  He had said that courage was the most important virtue, since it guaranteed all the others.  When Time Magazine in 2000 named its Man of the Century, we were surprised that it wasn’t Winston Churchill.

• This from a friend writing after the recent MBA Convention:  “I’m told the sheer number of loans Fannie and Freddie are asking lenders to repurchase has never been larger. Lenders say the reasons for the buybacks are getting thinner and thinner. It must be hard to fight buybacks if the reasons behind them are so thin. Case in point: Buy back this loan two years after origination because you didn’t re-verify employment two days before closing. Retort: But that wasn’t a condition; we met every single one of your systems’ conditions for approval. Response: Doesn’t matter. Retort: So of what value is AUS approval if we must go beyond the instructions we were given and followed? Response: Doesn’t matter.”
• Did you know that over 300 people are killed (i.e. eaten) by crocodiles every year in Australia ?  Lots of them grow to 17 feet in length!  Spooky.
• Where were you in 1972?  Were you even born?  That was the first year the Dow Jones Industrial Index ever passed 1,000.  It was also the last year Willie Mays ever played in the uniform of the San Francisco Giants. 
• We’ll give you a few more days to nominate your scariest movie of all time.  We’ve gotten some great entries already.

What are you doing about your Strategic Plan for 2009?  It doesn’t matter if it’s two pages or ten pages long, but you need one.  Think of it this way:  You’re going to drive from Seattle to New York .  Don’t you need to think about that trip before getting in the car?  Yes, of course.  You need to plan out which freeways to take, how many days you’ll be driving, how many hours per day, whether to book hotels in advance, and so on.  You wouldn’t think of just hopping in the car and just heading, vaguely, in an Easterly direction. 
Unfortunately, too many mortgage bankers think about the following year just that way.  “Our goal is to do a lot of volume and make lot of money.”  No!  You need a Plan, a roadmap, a set of goals.  You need to document the resources you have and those you lack and want to work on  We see all the time that companies with a roadmap and measurable goals perform much better than those who lack them.  It may not have mattered a whole lot in 2004-2006, but even then, back when everyone was making money, the companies with a Plan outperformed those without one. Now, in tough times, it’s all the more important. We assist companies a lot in writing such Plans, and it’s usually a fairly straightforward one day assignment.  With our help or without it, though, you just need to have one.  November is a good month to get started. 

Garrett, Watts & Co.  -  Joe Garrett and Corky Watts
510-469-8633 or 408-395-5504