To Our Clients, Colleagues and Friends, 

• Why is it so damn hard to get a new warehouse line?  The simple answer is that with volumes up, WH lenders are being swamped with requests for increases on existing lines.  The WH bankers we talk to tell us their highest priority is taking care of current customers. 
• Some good news in all the banking mess is that banks are replacing higher rate CDs with lower rate deposits, lowering their cost of funds and increasing revenue. As an example, Hudson City Savings in January and February alone ran off $4.3 billion in CDs that had a yield of 3.97% and replaced them with CDs yielding 2.9%.  They’ll save over $35 million a month in interest expense.

• Generally, each movie sequel is worse than the one before it. Proving this is that there have been nine Halloweens and six Texas Chainsaw M assacres.  Freddie Kruger of Nightmare on Elm Street has starred in eight films, and there have been a dozen Friday the 13^th films.  We believe that the first Nightmare on Elm Street was actually a brilliant film.
• Before we get inundated with e-mails, yes, The Godfather II may have been better than the first one.  It certainly wasn’t a typical sequel.  We would also add that the Rocky sequels were generally pretty good.  We think.

• Here are some of the largest owners of first lien mortgages.  Note the decrease for some of them from the prior year.

	Sept, 30 2008	Sept, 30 2007
Bank of America	$261 billion	$275 billion
Citigroup	$172 billion	$158  billion
Wells Fargo	$ 86 billion	$ 85  billion
SunTrust	$ 28 billion	$ 32  billion
U.S. Bank	$ 26 billion	$ 25  billion

• Is commercial real estate (CRE) the next shoe to drop? In 1993 less than 2% of our banks and thrifts had CRE exposure equal to or greater than four times their capital.  Today, about 12% of them fit this category.
• By time you read this (we typically write it well before it goes out) Thornburg Mortgage might have filed for bankruptcy.  One private equity firm invested $1.35 billion in them only a year ago.  Oy.
• Of all the responses on Wazoo v. Wazootie, most said that Wazootie was the feminine form of Wazoo.  Funny people.

• Hall of Fame pitcher Nolan Ryan got regulatory approval to open a bank in June.  Ryan’s bank will be called R Bank and will be in Round Rock, Texas .  The great strike-out artist has owned two other banks, both of which he sold at a very nice profit.  Isn’t it nice when banking and baseball intersect?

• Have you ever thought that baseball is the sport for intellectuals? We read that something like 900 books on baseball are published every year, and our guess is that maybe a tenth as many are published on football or basketball.  Maybe it’s just that the statistical part of baseball opens the door to so many deep discussions.
• Our friend and colleague, Pam Strickland , has been appointed to the National Mortgage Review Committee to help write the SAFE Mortgage Test for national and state testing of all mortgage originators.  Some states are on the fast track for compliance, with implementation in the fall of 2009, we’re certain more information will be available as the date nears.  By the way, she’s someone you really should talk to once a year about compliance issues.
• It’s amazing how the servicing business has died.  Bulk deals bids are so low that no one is accepting them, and flow?  Forget about it.  Flow deals are non-existent at any price.  Actually, it’s a great time to switch sides and be a buyer.
• With high school kids spending this week or next visiting colleges, this raises an interesting question.  If you could do it over again, would you still go to the same college you went to?  If not, where would you go?
• We were reading one of those books on which college to apply to, and there was an interesting line about Whitman College .  It said that the founder decided to start the college to honor the Indian tribes of the Northwest - but was killed by Indians before the school could actually open.  Don’t you love finding little gems like that?

We just finished Richard Reeve’s biography on Ronald Reagan. It’s a bit surprising how vigorous Reagan was his first term, but then again, he was quite vigorous when Governor of California.  Late in his second term, it looked like early-stage Alzheimer’s may have started, as he was often confused and forgetful.  In many ways, he was unengaged in countless aspects of policy, but he certainly got the big picture right. He brought taxes down from 70% to 28% (but raised them in his second term), and his policies certainly played an important role in the ultimate demise of the Soviet Union .  For those who never liked him and refuse to consider him a great President, most will probably acknowledge that he was a significant President.

Two items we liked:  First, when he appointed his first National Security advisor, Richard Allan, Allan suggested they set aside few hours so he could get to know the new President’s views on the Soviet Union .  Reagan answered, “Richard, there’s no need to spend any time on it.  My view is simple.  We win, they lose.”  Simplistic, yes, but morally correct when compared to détente and co-existence.  Churchill never wanted to co-exist with Hitler, and Reagan didn’t want to co-exist with what was truly an Evil Empire.

Second was when Gorbachev complained about negotiating with Reagan.  “”It’s impossible to negotiate with him.  He refuses to accept the legitimacy of our government.”  Precisely!  Reagan was absolutely right; it wasn’t a legitimate government.  It wasn't elected, and it ruled by terror.  Stalin murdered over 15 million of his own people, and even in the late 1980’s, there was fear of the midnight knock on the door by the Secret Police.  Reagan is endlessly fascinating and difficult to really understand.  He was a simple man, though much smarter than people gave him credit for, and while he was wildly ignorant or misinformed on many topics, he changed America and changed the world. And to a very large extent, he changed them for the better.

Joe Garrett and Corky Watts  -  Garrett, Watts & Co.  -  510-469-8633   

“Helping mortgage lenders increase revenues, control costs, and better manage risk.”