To Our Clients, Colleagues and Friends:  

· You know how sometimes you’re on a cell phone call and the call gets dropped?  You call the person back, but you get voice mail since he’s trying to call you back at the same time.  Here’s our solution.  Rather than having two people simultaneously trying to call each other, the person who initiated the original call will be the only one to dial.  Pass this on.

· For those who believe that Bank of America isn’t committed to the Countrywide correspondent channel, we need only look at their latest hires.  They’ve recently brought on some very high-powered people, not the sort of thing you do if you’re not committed to the business.

· Not to make you feel old, but guess whose birthday it is today?  It’s Robert Redford’s, born in 1936.  He’s 72, but we still think of him as the Sundance Kid, forever young.

· With so many states operating with big deficits, Alaska is definitely an anomaly.  Their Oil Revenue Fund will hand out $2,100 to every resident of the state.  Married with two kids?  You get $8,400.  And with gas prices higher, the state has passed out $1,200 debit cards to help all residents pay for higher gas prices.  How cool is that?

· If your loan officers maintain their own loan origination systems, you might want to look at someone like ABT to host them all.  We once saw a company with about 300 users of Calyx Point, almost all of them customized to the point of being useless to the company. Compliance, among other things, was a nightmare, and probably a governmental investigation waiting to happen.  When they had ABT host their Point users, everyone was using the same data, and the company was able to access this data in a meaningful way.  They were also able to have uniform disclosures, no small thing these days.  You can find them at www.myabt.com.

· Last week we had a brief discussion here on dangling prepositions, and this came from Ed Hon, Senior V-P at Far East National Bank:   When he heard comments on the misplacement of prepositions, Winston Churchill agreed by stating, “That is a violation of grammar up with which I cannot put.”  Funny. 

· Some 20 years ago, we met a rep for PMI named Rob McKay, just about the best we ever knew.  We’re sorry to report that he recently passed away.  He was in his early 60’s, far too young.

· We had a sort of trick question last week, stating that Babe Ruth would have gotten to 500 home runs in fewer at bats had he not missed so many games as a pitcher. Think about it, people.  The missed games don’t matter.  Same with Willie Mays or Ted Williams being in the military.  It would have affected the age at which they hit their 500^th homer, but not how many at bats it took.  Uber-CFO Rich Ransome was the only one who caught this.

· Do you have an accurate Organization Chart for your company?  You’d be surprised how often we’re in companies which lack them. Perhaps it doesn’t matter if you’re a tiny company, but once you have more than a handful of employees, you need one.  We always like to ask people (1) what does your job entail, and (2) whom do you report to.  And in companies lacking such an organization chart, it’s surprising how uncertain people are on the second question.  We often hear them say that “Well, I report to Chris, but I also kind of report to Sally.”  Not a good way to run a business.  Draw up an organization chart, and make certain everyone gets a copy.

· We’re seeing a slight increase in companies interested in getting FNMA or Freddie Mac approval. There are many issues to consider here, but a simple way of looking at it is this:  If you’re selling your conforming loans to, say, Franklin America, what are they doing with them  if not just turning around and selling them to Fannie or Freddie?  Sometimes a middleman can give you a better price than the end investor (perhaps they have a lower guaranty-fee than you’ll get) but generally, in any business, the more you can squeeze out the middleman, the better you’ll do.  We’ve actually advised more companies to not get approved than vice versa, but you should at least consider the positives and the negatives.

· The market cap of GE is $296 billion and at Microsoft it’s $254 billion.   Even after their stocks have been hit, the market cap is $140 billion at the BofA, $130 billion at J.P. M organ, and $100 billion at Wells Fargo, Now - are you sitting? - it’s only $9 billion at FNMA and $4 billion at Freddie Mac.  Let’s put them in a chart to make it even more graphic:

We threw in Bank of Nova Scotia, an obscure (but well run) Canadian bank, just to show how low the two GSEs have fallen in terms of their value. It’s obviously not politically possible, but with such low market values, Kuwait , Dubai or China could buy Fannie Mae and Freddie Mac with the loose change in their pockets.  Or since he’s retiring from Microsoft in a few months, Bill Gates could buy them both just to have something to do.  We think the Bush administration will leave this hot potato to the next President, but regardless, Fannie and Freddie in 2010 will not be the same organizations they are today.  At a minimum, we believe that their shareholders will be wiped out.

· Did you feel picked on when you had to buy back loans earlier this year?  Well, it happens to everyone, including FNMA and Freddie Mac:  Here’s a direct quote from the August 18 issue of Barron’s:

“The companies (FNMA and Freddie Mac) also appear to have boosted their capital ratios by sharply curtailing their repurchases of soured mortgages from securitizations they’ve guaranteed. 
The fourth quarter of last year, for instance, Freddie Mac took a loss of $736 million on loans repurchased.  In this years first quarter, that figure dropped to $51 million – a stunning decline in view of the continued deterioration of the housing and mortgage markets. 
Instead, the company made the interest payments to bring the mortgage current – a much smaller outlay, but a tactic that only pushes an inevitable loss forward into the future quarters.”
The premise of the article is very disturbing, that FNMA and Freddie Mac are, essentially, broke. 

By the way, no one thinks about mortgage industry issues as intelligently as the guys at Stratmor, and they have an article on the Future of Wholesale in an upcoming issue of Mortgage Banking.  We can’t wait to see what they have to say.

Garrett, Watts & Co  -  Joe Garrett and Corky Watts