To Our Clients, Colleagues and Friends,

• A big fight in Washington just ended over whether a special FDIC assessment should be based on assets or deposits.  Why? A good example is State Street Bank.  They have $170 billion in assets and only $37 billion in deposits, so they obviously wanted the premiums based on deposits.  Most community banks are just the opposite, with more deposits than assets, so they took the other side. The final ruling was that the special assessment would be based on asset size. As agitated as bankers got about this, you wonder if issues like this ever reach the Oval Office.
• We’ve attached an article we wrote several years ago. The title was a play on that book about the Seven Habits of Highly Effective People.  We chose seven practices of highly ineffective mortgage bankers. The title sounds a bit mean-spirited, so please don’t take offense.  The points we make are worth reading.
• We get asked a lot about the various hedging services, and the good news is that they all work!  Compass, Flatirons, CMC, MCM and so on.  All have their unique features, but all of them do the job.  We looked at the Flatirons reports Thursday morning after the big sell-off Wednesday, and it showed losses in the pipeline were almost exactly offset by gains in the MBS positions.  Actually, the client whose reports we were looking at came out ahead a little over $100,000 for the day.
• Our FOCIS Risk Study has a new component in the section on Secondary Marketing.  We now set a score tied to whether or not there is a centralized rate lock function.  Companies that let loan officers lock directly with investors are, at best, leaving money on the table.  Over the years, we’ve seen that companies that let loan officers decide where a loan goes are less profitable and are also the ones with the worst pull-through numbers.
• We’ve always liked a diverse regulatory framework for financial institutions, but we’re starting to think a single regulator might be better.  Think about the sub-prime crisis that was starting to get noticed in 2006 or so.  Rather than having a unified approach, we had the following regulators looking at it through their own lenses:  The Office of Thrift Supervision, The Office of the Comptroller of the Currency, the FDIC, the NCUA, The Federal Reserve, plus 50 regulators for the state chartered banks. That’s 55 separate regulatory bodies, and we’re probably missing several.
• We’ve only seen two companies this year that have formal succession plan. If you’re the sole owner and married, is there a plan as to what your spouse should do with the company?  If you have partners, is there a plan that spells out what happens if one dies?  The list of issues can be somewhat lengthy, but you need to do it and do it in writing.  One company we saw with three owners even prohibits all three from flying in the same airplane.  Good insurance agents know about succession planning, but they’ll always want to sell you Key Man Life Insurance. But even that may make sense in many cases.
• Dallas housing prices have held up better than any city in the nation.  Prices are off only 11% their peak in mid-2007.
• With General Motors about to join Chrysler in bankruptcy, it’s hard to remember that American cars once had an aura of romance to them.  They were central to the youth culture, and top-40 hits always included songs about them.  Do you remember She’s got a competition clutch with a four on the floor, and she purrs like a kitten when the lake pipes roar?  (What the heck are lake pipes?) And what teen ager didn’t sing along to My super stock Dodge is winding out in low, but my fuel-injected Stingray’s really starting to go….?  It’s amazing to think back to a time when certain cars were considered sexy, and the release of a new year’s models was a source of anticipation.  Things have changed, and it’s hard to imagine the Beach Boys today singing And she’ll have fun, fun, fun till her daddy takes her hybrid away.
  
• With all their wealth, people are predicting that China will end up owning big chunks of America .   To prove the point, a Chinese businessman last week bought 15% of the Cleveland Cavaliers.  Wouldn’t it be amazing, and maybe embarrassing, if some Chinese billionaire someday bought, gasp, the New York Yankees?
  
• Sorry for only putting out one Garrett, Watts Report this week.  We were in Kansas the last few days at CapWest Mortgage, the mortgage subsidiary of Farmers Bank & Trust.  An interesting and highly successful mortgage banking company within a terrific bank.
  
• A former employee and friend told us that she’s re-reading Atlas Shrugged, and we got to thinking.  As powerful as the book is, we’ve mellowed over the years.  We think it’s essential that people read it, especially younger people, but we now believe that Ayn Rand’s philosophy can be tempered by reading Upton Sinclair’s The Jungle.  We very much believe in Rand ’s philosophy, but we think The Jungle shows that there is still a need for compassion in this world.
  
• This past Wednesday was the 50^th anniversary of Harvey Haddix’s 12 inning perfect game.  We were listening to a Giants game that night, and when the game finished, they piped in the last three innings of the Pirates game.  If you’re a baseball fan, you also know that Haddix lost it in the 13^thgiving up a Joe Adcock home run.
  

When we ask mortgage bankers about various issues, we’re often told, “Yes, we have a policy on that”, but can we remind you that if it’s not in writing, it doesn’t really count? When you get down to it, your policies should be in writing and should be approved by your Board, or lacking one, your President.  When you’re in a court of law or talking to a regulator, having a policy in your head doesn’t really count.  Have a good week, enjoy the weather, and we’ll try to get back to twice-a-week on these newsletters.

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

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