To Our Clients, Colleagues and Friends,

• We sort of got accused of using our newsletter to hype our clients, and that’s largely true.  Yes, we like to say nice things about our clients who are doing well, but we have many clients, if not most of them, who bring us in because they’re not doing well.  We never mention them since it wouldn’t be very polite.

• Speaking of saying negative things, remember Teddy Roosevelt’s daughter, Alice?  When she grew up and became a big part of Washington society, she once said “If you don’t have anything nice to say about people, come and sit next to me.”  She was the town gossip and liked hearing all the dirt on people.

• And speaking of clients doing well, we recently did FOCIS-plus Reviews on Mountain West Mortgage of Redlands, California and Academy Mortgage of Utah.  These two companies are remarkably profitable on a per loan basis. Both share the same characteristics of tight controls, quality people, disciplined approaches to secondary, and owners who focus on a whole lot more than just volume.  One is almost all wholesale and the other is almost all retail, but the common theme that explains their outlier profitability is superior management at all levels.

• Indiana State has now lost 35 straight football games!  Even worse records were Prairie View A&M, which lost a record 80 consecutive games in the 90’s and Columbia University which lost 44 straight in the 80’s.  For those of us who get angry because our team doesn’t go undefeated, we should count our blessings.
• Laird Minor of Nautilus Capital wrote us about credit scores, suggesting that someone with a 580 credit score could be a habitual deadbeat or a good borrower who had the misfortune to run into some financial trouble. “It would be more useful if you could get credit scores over a period of time, so you could see the developing trend.”  An excellent idea, and how about getting the borrower’s credit score at six-month intervals for the past five years and then for each of the last six months? That’s something Fair Isaac should look into.
• If you own a mortgage company and it’s making a ton of money this year, you can imagine the President or senior mangers asking for a big bonus or a raise.  Sure, they made a ton of money, but the real issue is how they did relative to their peers.  Sure, they made, say, $3 million this year, and that was up from $2 million last year. But that’s not the real measurement. Again, it’s how they did relative to their peers and, and this is a big gone, did they just ride the wave or did they outperform it?
• Do you remember growing up and the only apples you ate were Granny Smith or those red ones? We just had our first Honey Crisp apple.  What a great taste!  You should try one.  Can you believe we write stuff like this in here? 
• From some local newspaper.
  

• Mortgage and housing economist Doug Duncan, the always dangerous Double-D, brought up an interesting point about baseball, that it’s the only major sport wherein when you’re on offense, the defense controls the ball. A great mind, that Double-D.

• This will blow you away, but when the two of us got started in the business, a married woman’s income couldn’t be counted as qualifying income unless there was a letter from her doctor stating that she was using birth control!  Underwriters would always ask if the file had a  “birth control letter.” This was a FNMA requirement, and can you imagine their getting away with that now? More proof that the world gets a little better and a little more rational each year.
• A secondary marketing person we know wrote us:  “I spent the entire day hoping I wouldn’t have to pair-out of any trades at these levels – why does the market rally the 1st day of the month when my pipeline is at its lowest?”
  Our response was off the cuff, but we liked it so much that we’ll re-run it here:  “Markets are almost like a living organism, and they seek maximum efficiency by putting weaker players out of business in search of this efficiency.  By that logic, they will always operate in a way that makes it difficult for the weaker participant to play the game, so it might very well be more than a coincidence, having the market rally when pipelines are at their lowest. I’m making this up as I go, but if Dawkins can make us believe that a single gene seeks its own ends, then why wouldn’t markets do the same, esp. because they’re made up of thousands of individual players all pursuing maximum efficiency?”  Even if it’s not accurate or logical, it sure sounds good.
• Today is Chubby Checker’s 70^th birthday!  Kind of amazing to think what a huge phenomenon The Twist was.  Also, remember how totally  embarrassing it was when you saw your parents do it?

• Have you ever noticed that Robert De Niro always plays himself?  His only great roles were in Mean Streets (low life hoodlum Johnny Boy) and Bang the Drum Slowly (Bruce Pearson, the dying baseball player).  It occurs to us that in both movies he played a really dumb guy, as in low-IQ dumb.  Maybe that’s the real Robert De Niro, and maybe that explains why he was so good in those roles.  This was something that came to us while cruising up Highway 61 in Missouri a few days ago.

• For all us steelhead fishermen, the great news is that the government has agreed to demolish four dams up and down the Klamath River in California and Oregon .  We fished that river with Paul Tuttle in 1989, and we can’t wait to go back when they’ve finished the demolition so Steelies can go up the full length of the river. If you’ve ever caught a Steelhead, you know what a great fighting fish is.
• When we were in Hannibal seeing F&M Bank (Farmers & Merchants), they told us about a small mutual thrift down the street.  American Loan & Savings Association (yes, not Savings & Loan but Loan & Savings) celebrates its 100^th anniversary next month, and after all these years, it’s a whopping $5 million in assets.  There are two paid employees, and we went over there just to see what it looked like. We asked one of them how they handle compliance with so few employees, and the answer was that it was very difficult. “We’ve closed two loans so far this year, and we spent a lot of time making certain we did them properly.”  Two loans all year???  For those of you who’ve dealt with mutuals, this won’t surprise you.  With no shareholders, there’s no one pushing management to grow or to make money. Or to do anything, for that matter.  Anyway, it was a true dinosaur, a real trip back in time.  
• We looked at the Missouri road map when we were there last week and we noticed the following towns in that State:   Memphis , Mexico , Warsaw , Mt. Vernon , Louisiana , Cuba , Glasgow , Houston , and our favorite, Humansville.  Mark Twain was born in a small town called Florida , Missouri .
• As you know, HUD wants to stop approving mortgage brokers for Mini-Eagles, shoving that responsibility back onto the Full Eagle mortgage bankers.  We kind of think the serious players like Wells and BofA would be more stringent than HUD.  We trust the credit people at Wells a lot more than we’d trust the credit people at HUD.
• Here are two things we learned when we were in Hannibal :  (1) Mark Twain modeled the scamp Tom Sawyer after himself, and (2) Huck Finn was modeled after a local boy, son of the town drunk, named Tom Blankenship.  We visited Twain’s boyhood home and the home where Blankenship lived.  What’s really cool is that right outside Twain’s old home is the fence that Tom Sawyer convinced the other boys to whitewash for him.
• The NFL has completed a study showing that Alzheimer’s is nineteen times more prevalent in former NFL football players than the rest of the population.  We’d like to see a study of boxers, who get hit in the head much more often than football players.
• The house next door to us is the old Duncan MacDuffie estate, and a grander mansion doesn’t exist.  The estate is up for sale, for only the second time in the last 80 years or so. MacDuffie started Mason-MacDuffie as a real estate and mortgage company back, if we recall correctly, in 1887.  At 122 years of age, Mason MacDuffie may be the oldest mortgage banking company in the nation!
• Finally, someone was reading a very old newsletter and wrote that “Since you like horror movies like Rocky Horror Picture Show, you’d love Shaun of the Dead.”  Wow, where do we begin?  (1) Yes, Rocky Horror is kind of a horror movie, but only if you’re scared of transvestite vampires + seeing the world’s biggest butt-crack when Meatloaf writhes around on the floor singing Hot Patootie Bless My Soul.  (2) We rented Shaun of the Dead and turned it off after only a few minutes.  The movie has the zombies running after their victims, and zombies cease to be scary when they run!  People, the very thing about them that’s so scary is how they move so slowly.    It doesn’t matter how much eye shadow you put on them, fast moving zombies are just not bed-wetting scary.  For the real thing, watch the all-time great Night of the Living Dead.  But take 9-10 sleeping pills that night.
• Finally, now that we think about Meatloaf singing that song just before being murdered by the transvestite Frankenstein, we realized that we haven’t a clue what a “Patootie” is.  When someone says “Hot Patootie Bless My Soul”, just what are they trying to say?  A little help here, please?

We wrote last week about driving up Highway 61 in Missouri and discovering all those quaint little towns, all a part of our love of and lifelong search for America and what it truly means.  In a way, didn’t it start with Lewis & Clark who were literally trying to find America ? And wasn’t it also what Davy Crocket and  every other frontiersman were doing? Didn’t Jack Kerouac capture a generations imagination writing about his search for America in the 50’s, and didn’t the movie Easy Rider have that as a theme in the 60’s?

We get just as excited finding a small town like Bowling Green , Missouri as we do stumbling across an exotic Crusades-era castle in Romania .  We just thought we’d mention this.   See you next week sometime.

Garrett, Watts & Co.    -  Joe Garrett (510-469-8633)  – Corky Watts (408-395-5504)

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