To Our Clients, Colleagues and Friends:

· Remember American Home Mortgage, now being liquidated in bankruptcy court?  They’ll pay a maximum of 5.9 cents on the dollar to secured creditors as they liquidate their assets, and the unsecured creditors will receive up to 2.2 cents on the dollar. As you’d guess, shareholders will receive nothing. We knew some good people there.

· We get asked from time to time if we do recruiting. We’re not recruiters or head hunters, not by a long shot.  However, we have done a small number of select searches for clients, almost exclusively in the areas of Secondary Marketing and Finance.  Our fee, by the way, is about a third of the typical recruitment firm.  

· We see the occasional office that is truly paperless, and perhaps not coincidentally, they tend to be more profitable than those who have loan files piled everywhere.  If you’re not paperless, why not?  What are you waiting for?  There’s the old cliché that in a commodity business, the low-cost provider is the winner.  And going paperless may be the one, easiest way to drive your costs down.

· Wamu is offering 5% for a one-year CD.  Uh oh.

· One could argue that Fannie & Freddie have done more for the American middle class than all the rest of these companies combined, but you wouldn’t know it by their value.  It’s shocking how far the mighty two GSE’s have fallen.

AFLAC is the insurance company whose mascot is that funny little duck that goes around quacking AFLAC in strange settings. It has about thirteen times the value of Freddie Mac and 4.75 times the value of Fannie Mae.
By the way, the next five weeks are crucial to Fannie and Freddie if they are to stay independent. They will have to raise and roll over $225 billion in mostly short-term notes before the end of September. If they run into trouble raising this money, watch for the U.S. government to step in and take them over. M any analysts think it’s a matter of “when” and not “if.”

· If you’re on a computer that uses Windows, have you been doing your Windows Updates lately?  Lots of people have it set to happen automatically at 3:00 am or so, but if your computer is turned off then, it probably won’t happen.  So check daily.

· Is there a company out there that doesn’t talk about service being their great strength?  How many really provide it?  The biggest key in our view is simply staying in communication with customers.  Return calls immediately. When someone is concerned enough to call, they worry when their call isn’t returned.  Is someone hiding bad news? Why don’t I hear from them?  Service, in many cases, is simply calling a customer back to tell him you don’t yet have anything to tell him.

· They’re sure bold about selling software to enable mortgage fraud these days. Check out  http://www.fakepaycheckstubs.com

· There is a lot of scary stuff being written about the U.S. economy, much of it focused on our massive deficits and irresponsible governmental spending. We’re pretty cynical here at Garrett, Watts, but we believe deeply in the resiliency of the U.S. economy. In the early 1990’s, everyone wrote about the “hockey-stick” pattern of federal debt that would ruin us, but in 1998, Bill Clinton said the following in his State of the Union address:  For three decades six presidents have come before you to warn of the damage that deficits pose to our nation.  Tonight I come before you to announce that the Federal deficit - once so incomprehensibly large that it had eleven zeros - will be, simply, zero.  We balanced the budget once and had big surpluses for three years. And we can do it again. 

· Oakland, California had eight take-over robberies of restaurants in July alone. This is where masked robbers enter a restaurant, make every patron get on the ground, take their wallets and jewelry, and often shoot one or more people. Oakland Mayor Ron Dellums has blamed it on a bad economy and added: “When people become this desperate, they take desperate acts, and we have to get to the root causes of crime and violence.”
Is this the dumbest thing you ever heard, or what? Does he think these armed robbers were nuclear engineers or research scientists who got laid off because of a slowing economy?  Criminals are criminals, and thugs are thugs.  Root causes?  What is he possibly thinking? It’s got nothing to do with the economy. Is there some special school where they teach people to think like morons?  Did Oakland ’s Mayor graduate first in his class there?

· We do a fair number of valuations of mortgage firms, and someone recently asked us how we can do this without any real price-to-earnings comps out there.  A good question.  There is very little private activity where you can get the numbers, and there are very few public companies left from which to derive ratios and comparables.  So what we mostly do is run discounted cash flow models.  Does that answer your question? 

· On this month in history, August 22, 1920, the 19^th amendment was passed, giving woman the right to vote. It’s amazing that we had grandmothers or great-grandmothers who weren’t allowed to vote.

· It appears that there will not be a buyer for Indy Mac as a whole bank, so watch for the selling off of various pieces.  Financial Freedom should be attractive, and we happen to think Indy M ac built a very nice branch network that someone will want to buy.

What are you reading these days?  Send in the names of books you’re enjoying these warm summer nights, and we’ll put together a top ten list of our readers and clients.   Cheers.

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