To Our Clients, Colleagues and Friends,
- We wrote last week that credit unions can be serious competition for mortgages, so here are the top CU’s based on the size of their mortgage holdings:
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1. $13.1 billion |
Navy Federal CU ( Vienna , VA ) |
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2. $10.1 billion |
State Employees CU ( Raleigh , NC ) |
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3. $ 6.4 billion |
Pentagon Federal CU ( Alexandria , VA ) |
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4. $ 2.5 billion |
San Diego County CU ( San Diego , CA ) |
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5. $ 2.4 billion |
Alliant Credit Union ( Chicago , IL ) |
- If you’re looking for a name for a new company, do not name it New Century. Sub-prime lender New Century was a spectacular disaster a few years ago, and last week, New Century Bank in Chicago failed.
- An audit revealed that Oakland misspent about $3 million in stimulus funds. City officials took some kids (and themselves) to a water park and to the Santa Cruz beach boardwalk. Mayor Ron Dellums said “This is much ado about nothing… it’s an accounting issue.” He added that “It’s about quality of life. It’s about inspiration.” Did Dellums take too many hallucinogenics when he was younger or something? How can people have such screwed up thinking?
- We have a client who’s looking for a commercial bank or thrift to buy. He’s willing to invest up to $8 million for a control position. If you know any mid-Atlantic area banks which might be a fit, let us know.
- Companies with servicing portfolios that we talk to or do studies for seem to service about 600-700 loans per servicing employee. It’s obviously much higher for the giant servicers like BofA or Wells Fargo, with much greater resources and technology. Anyway, we remember seeing these numbers in about 1980, and companies tended to service more like 300-350 loans per employee. And while the industry is more efficient, basic GSE servicing used to be 37.5 bps and is now, generally, .25 bps or less. It just seems that a portion of the improvement in efficiencies due to technology are offset by margins shrinking. Doesn’t this apply to almost all industries?
- This isn’t quite the same thing, but it’s always seemed like technology companies suffer from a syndrome where their new advancements never really lead to fatter margins. Instead, it just allows the price to the consumer to drop. Think about the basic IBM PC in 1985. It had almost no computing power and cost $5,000. Today’s basic PC probably has 50 times the power but now can be bought for under $1,000. Have the profit margins at Dell or HP gotten wider because their products keep getting better and better? It doesn’t seem so. Automobiles are safer and get better mileage than cars of 30 years ago, and car prices keep going up. You get a better car today but you pay more for it. That just doesn’t seem to happen with tech companies. With them, it’s “You get a better computer today and you pay less for it.” Why is that?
- Here’s something else we’ve thought about: For those of you young enough to remember what a secretary was, there was a time when every executive had his own secretary, and she even had a “Steno pool” to handle her overflow of typing. Yes, companies have become more efficient by using word processing, but does that executive really benefit? We know plenty of $500-600 an hour lawyers who type up their own agreements and contracts. Who’s more profitable, (1) that lawyer who paid a secretary to do his typing, take his phone call, and keep his calendar organized, freeing him to generate more revenue, or (2) the lawyer that saves the cost of a secretary but who spends 2-3 hours a day doing his own contracts, going through e-mail, and keeping his calendar organized?
In our simple way of viewing it, that $500 an hour lawyer who spends three hours a day on stuff a secretary used to do is forgoing $1,500 a day. That’s $7,500 a week or $375,000 a year. Wouldn’t it be better to simply pay a secretary $70,000 a year? Is technology truly making our lives and our businesses more efficient? - One last thing about technology: Political thinkers like Gorge Orwell and Hannah Arendt used to think technology would be the permanent bootjack on the neck of mankind, and you only need remember in 1984 how TVs were watching the viewer and hidden cameras were everywhere. It turned out just the opposite. In Tiananmen Square , faxes alerted the world to what was going on there, and the internet and the free flow of information makes it harder for a police state to suppress its people. Guttenberg was probably the first person to use technology to free people’s minds, Tom Paine and Thomas Jefferson gave voice to the concept of freedom, and the internet may be the final blow to tyrants everywhere.
- Jim Haggarty sent us this picture cleverly titled How to Properly Complete the New GFE.
- Forget about Kevin Costner’s pretentious Field of Dreams. Here’s the great Cleveland pitcher Bob Feller in a recent interview. “My dad and I built a ball diamond in the pasture. We cut down 20 trees, put the post in the ground, put up the chicken wire and built the ballpark. We peeled the infield and fenced off the outfield to keep the livestock off. We started building in 1931 and by 1932, and my dad had a team out there, a bunch of farm kids.”
- Here’s a concept we’ve never quite gotten a grip around, the issue of diversification in a bank’s balance sheet. The obvious reason is right in front of us: Had banks had less exposure to construction and commercial real estate loans, had they diversified into many loan categories, we wouldn't be having such major problems. We believe in this wholeheartedly. But on the other hand, we’ve seen some banks that are very successful just doing one thing. We once ran one such bank, where it made almost all its money from mortgage banking. We can argue either side, but we’re sort of leaning toward diversification. Even if we wanted to focus totally on mortgage banking, maybe we’d do it this way (as a percentage of revenue): 50% mortgage banking, 25% portfolio mortgage lending, 20% small business lending, and 5% SBA.
- As a part of your Annual Plan, what about targeting a specific number for your FHA Connection Neighborhood Watch score? Most companies tend not to think about this score unless it gets too high, but it might make sense to have a specific goal. And this doesn’t just mean getting it lower. It might be to actually increase it. If your score is too low, it probably means you’re turning down too many good loans.
- Someone just sent us a video of Jerry Lee Lewis, and has it occurred to you that he and Little Richard may have been twins, separated at birth?
Jerry Lee was hugely popular rock star till he married his 13 year old cousin. - What if gain-on-sale margins shrank dramatically? What if the pick-up going from best efforts to mandatory got also shrank? Our analysis of dozens and dozens of income statements show that if you cut these in half, almost no one will make money.
- Lots of people realize that a bank can manipulate earnings by deciding how much (or how little) to add to loan loss reserves, Many don’t realize that banks can also determine that they have excess reserves and return an amount which then goes toward earnings. We hesitate to call it an accounting game, but it can be a powerful earnings tool. Bank of America released $992 million from its loan loss reserves last quarter, and JPMorgan Chase released about $900 million. We have a simple view that you can never have too much in the way of reserves, and once you have it in there, just leave it. Eventually the day will come when you’ll need it.
- Last issue we mentioned that one of the Berkshire Hathaway insurance companies had written a policy with a one time $7.1 million premium. We meant to write that it was for $7.1 billion.
- On This Day in History, April 29, 1975, the last Americans evacuated Saigon minutes before the North Vietnamese takeover. This was 35 years ago, and in some ways it seems like it was a lifetime ago, and in others, like it was only yesterday. This war tore the nation apart and destroyed Lyndon Johnson’s presidency.
This photo shows the last Americans on the roof of the U.S. Embassy escaping by helicopter. Down below, mobs were swarming over the embassy gates seeking refuge from the North Vietnamese army and the Viet Cong. One of the most despicable decisions in American history occurred when Henry Kissinger decided to abandon our plans and promises to evacuate those Vietnamese who assisted us, dooming their fate to death as collaborators at the hands of the Viet Cong. - Monday was Brooklyn pitcher Sal Maglie’s birthday, and what we always liked about him was his saying that “Nobody wants to hear about the labor pains. They just want to see the baby.” And isn’t that true? When someone tells you “Gee, I didn’t get those loans shipped on time but I really worked hard at it” you can use this line on them.
- Just a reminder that the President has called for a permanent increase to the cap on 7(a) and 504 SBA loans from $2 million up to $5 million. Let’s say you do a $5 million 7(a) loan and get 90% of it guaranteed by the SBA. In today’s market, if you priced the loan correctly, you should be able to get 8 points, or $360,000. That’s a pretty good gain-on-sale for a single loan.
- Mike McAuley (281-250-2536)
- Corky Watts (408-497-3135)
- Joe Garrett (510-469-8633)
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