To Our Clients, Colleagues and Friends:   

· The MBA/STRAT MOR peer group study is, in our view, the best industry analysis that anyone does.  Their 2007 study showed that smaller lenders reported average profit margins of 10.1 bps vs. an average loss of about 15 bps for the Mega and Large lenders.  Within the production channels, the mid-market lenders saw their retail and direct lending volumes increase and profitability improve in 2007 over 2006.  And here’s the part that in a way doesn’t surprise us, but still interests us: The broker wholesale channel was a financial disaster for lenders of all sizes.

· If you do wholesale, have you spent a few minutes thinking about what you’d do if wholesale were eliminated or cut back?  What if investors stop buying TPO loans?  What if they charged a premium?  Or what if warehouse lenders charge a higher rate on loans originated through brokers?  We’re not saying any of these will happen, just that you should at least be thinking about them.  

· It’s official now. The Bank of America plans to drop the name Countrywide.

· Also, have you noticed how much more investors have been paying lately for mandatory deliveries v. best efforts? We haven’t seen the spreads so wide in a long time.

· We always thought it was Andy Warhol who said that “Celebrities are people who are famous for being famous.” Turns out it was historian Daniel Bell who first said it:  “A celebrity is someone who is known for his well-knowness.”  Funny.

· We do a lot of FHA approvals, mostly brokers wanting to get their mini-Eagles. For those who think it’s too complicated a process, (a) we’ll do 100% of it for you and (b) the attached card shows how easy the ten steps really are. Whether you do it on your own or have us do it, FHA loans are too profitable for you not to be doing them.

· We’ve all been reading with great interest about the many banks raising capital these past few months.  The interesting one will be SunTrust Bank.  They don’t need to figure out whether to sell common or preferred, or which private equity firm they have to go to.  Why?  The answer is their century-old holdings in Coca Cola. The own 44 million shares, and at $60 a share, they can simply sell some shares to raise capital.  Nifty.

· Trying to grow your loan volume? Of course you are. So here are a few things to look into.  First, check out the USDA Rural Housing Programs. Second, your state probably has a Housing Finance Authority.  Get approved and start selling them loans. They often have below-market rates and attractive programs for first-time buyers.

· Are you thinly capitalized but hoping that the market will turn in your favor soon?  Remember what John Maynard Keynes said:  Markets can stay irrational longer than most investors can remain solvent.   Build capital and liquidity.  It’s not too late. We’re still shocked though, at the mortgage companies which didn’t learn the lessons of 2007 on the importance of capital.  For too many smaller companies, they’re still 1-2 repurchases away from insolvency

· Does FHA allow you to share office space with another company? Sort of. While a mortgagee’s office must be located in a space that is separate and apart from any other entity, FHA says it can share general reception-type entrances or lobbies with another business. They just want it to be clear to the borrower who it is they’re doing business with.

· This week is the 22^nd anniversary of the explosion of the Chernobyl Nuclear Plant in the Ukraine in 1986.  When we were at Raiffeisen International Bank in Kiev last year, day trips to Chernobyl were offered as one of the tourism highlights.  We still find it weird that anyone would want to go there.

· Do you know of First Fed (FED), the big Santa Monica thrift? A full 63% of their shares have been sold short.  That’s a big vit of no confidence and a good reason why their shares may be ready to rally.

· And speaking of Eastern Europe, here’s a good way to get a free drink should you ever find yourself in a bar in Estonia .  First announce Elagu Eesti Vabariik, which means Long live the Estonian Republic .  Someone will definitely want to buy you a drink. If you then mutter, but mutter loudly, Kuradi Venelased, they’ll probably buy drinks for the whole house. It means something like And to hell with the bloody Russians.  Just don’t ask us how to pronounce these phrases.  By the way, when we were at Hansabank in Estonia in 2006, their mortgage programs were just like ours, but with all LTV’s about 10% lower. It was spooky, as if they knew what would happen in 2007.

Although we don’t think too many loan officers read us, we have a quote that we dedicate to all of them who failed to save their money during the good years leading to 2007. It’s from Oscar Wilde who once said that “It is better to have a permanent income than to be fascinating.”  And this was, of course, from a man who spent his whole life trying to be fascinating.  Our favorite Oscar Wilde quote was when he first visited New York City . When the Customs Officers asked him if he had anything to declare, his response was “Only my genius.”  And on his deathbed, he woke from a near coma, looked around the room and uttered “I absolutely cannot stand this wallpaper. One of us will have to go.” Those were his last words.

Have a good week, and let’s meet back here this Friday. And let’s talk about doing more mandatory sales, okay?

Joe Garrett and Corky Watts  -  Garrett, Watts & Co.