To Our Clients, Colleagues and Friends,

• Did you know it’s been 51 years since Leave it to Beaver debuted on TV?  And 38 years since Janis Joplin died?  Jerry Mathers went to Cal , and we’d see him on campus occasionally.  He seemed pretty normal.  Janis didn’t. We met a few times back then, (she used to show up at parties in Berkeley before she became really famous) and she was a loud, sloppy drunk.  But 51 years means that The Beave is about 60 now.  Shocking.  How did this happen?

• Are no-doc loans a thing of the past?  We have a client bank in the Mid-West that does them and does them very intelligently.  They limit the LTV to 70%, and if it’s a cash-out refi, the max LTV is 50%.  They only do retail production, and they only do it in the footprint of their branches.  Like we said, smart people.  They get a good yield and just hold them in portfolio.  They’ve been in business since the 1880’s. They know what they’re doing.
• The Dornbusch Principle (named, imaginatively, after the late MIT professor Rudi Dornbusch) states that “In financial markets, things always take longer to happen than you expect – but once they happen, events unfold more quickly than you’d ever have imagined.”  How true. 
• Heavyweight boxer (and philosopher) Mike Tyson once said that “Everybody has a plan until they get hit.” An interesting statement, and pretty accurate!  Does it apply to your mortgage business?  What if you have four branches and their managers all quit one day?   What if you lost all your warehouse lines overnight?  We call it Thinking about the Unthinkable, and you need to do it. Try to imagine the 2-3 worst things that can happen to you – and have a written plan to deal with them.
• In 1961 Roger Maris hit 61 homeruns without once being intentionally walked.  A weird statistic. Who the heck was batting behind him, anyway, some .220 hitter?
• Think of any new idea.  Doesn’t it seem that first come the innovators, then the imitators, then, finally, the idiots?  As hard as it is to believe, there was a time when sub-prime was a solid business.  Look at the early leaders such as Aames home loans.  The LTV’s were all low, as in 65%. Same with Alt-A.  The innovators lost out in the end to the idiots who kept raising the LTV’s.  We think it will return someday – but with super-low LTV’s.  
• From a client in the Northwest: “I predict November will be a horrible month for originations, purely from a mathematically standpoint. Weekends and holidays take up 12 days which leaves just 18 work days, and months usually have 21 to 23 work days in them.  This is approximately 20% fewer days than an average month and I think loan volumes will reflect this.”
• Lehman Brothers intends to sell its $8 million art collection. They also filed court papers to sell a corporate plane for $24 million.  We once read some SEC filing for Playboy, and they said they had approximately $15 million in art at Hugh Hefner’s Playboy Mansion .  Managers can sure screw the shareholders if they want to.
• Have you looked at USDA loans? The U.S. Dept. of Agriculture has some nifty mortgage programs for rural Americans.  And their definition of rural is pretty broad.
• Here’s a new word for your vocabulary: horripilation  haw-rip-uh-LAY-shuhn;  noun: the act or process of the hair bristling on the skin, as from cold or fear; goose flesh.  As in, “He got a sense of horripilation when he saw the letter demanding that he buy back ten loans.
• This is a list of the 50 biggest banks in 1985, the largest being Citicorp with $173 billion in assets.  What’s so interesting is how many of these banks are gone, typically bought by a larger bank.  And don’t be fooled. A lot of these banks look like they’re still around, but aren’t.   NationsBank bought BofA but kept the BofA name, and Norwest bought Wells Fargo, but took on the Wells name.  There are other ones like this as well.  And the list doesn’t even include thrifts such as Great Western, Home Savings, or American Savings, all gone.

There’s not much to be said, other than that this really shows the unrelenting force of consolidation.  As someone once said, in a consolidating industry, you’re either (a) the consolidator, or (b) you sell to the consolidator, or (c) you go out of business.  We do miss NBD Bank. (National Bank of Detroit ).  It used to be fun referring to them as Nice But Dull.

· We have a client in the St. Louis area that is looking for someone to head up their mortgage lending department. It’s an FDIC-insured bank, is 100% retail,  and they want someone who is sales- oriented.  They don’t do a huge amount of volume. But they do both mortgage banking as well as portfolio lending. We know this bank well and think the world of them.  Write or call us if you know someone who might fit.  If we didn’t have so much fun doing what we do now, and if we were much younger, this would be exactly the kind of job we’d love.

The International Space Station is getting a new bedroom, a new bathroom and some new filtering systems installed this week.  The filtering equipment is designed to turn urine into drinking water.  Um, guys, can’t we just bring more Gatorade? 
We’re in the Northwest again this week, in Seattle, one of the really great cities to live in or visit.  See you there.

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