To Our Clients, Colleagues and Friends,   

• You’ve probably seen this, but a whopping 28% of all Option Arms are delinquent or in foreclosure.  An additional 7% of all such loans have already been taken back by the lenders. Not good.

• Since we’re tossing around bad-loan statistics, over 50% of all sub-prime loans are either delinquent or in foreclosure. 

• A new Goldman Sachs study predicts that 61% of all Options ARMS originated in 2007 will eventually go into default.  But enough with the numbers – let’s talk about something less depressing.
• What do we hear mortgage bankers talking about these days?  One common topic/complaint is that some Warehouse Lenders want higher capture rates for their affiliated correspondent divisions.  We understand both sides of the argument, but capital is precious these days, and if we were WH lenders, we’d want to get a big piece of your volume as well.
• We’re pretty big advocates of selling your loans on a mandatory basis, but we also know some lenders who really got whipsawed and hit hard with pair-off fees last month.  The ones we think are pretty smart sell mandatory, but also go best efforts when the market is bouncing around too much.
• We were just thinking about how it’s been 40 years since man first walked on the moon in 1969?  Did we really gain anything from that effort?  It seemed like a big deal at the time, and now, it seems like nothing more than a meaningless gesture that was supposed to have Cold War significance.  Well, there was Tang.  Do they still make that god-awful fake orange juice?
• There are a number of reasons why some banks are getting out of the wholesale business.  One interesting one not mentioned much has to do with distribution.  Five years ago, Chase had 500-600 branches, mostly in the New York area.  After buying Wamu and some other banks, they now have over 5,000 branches.  So they just don’t need brokers as much to get loans.
• We just watched the movie To Kill a Mockingbird, and it’s truly a classic.  One interesting thing is the opening voice-over.  Macomb was a tired old town in 1932.  There was no hurry because there was no place to go and nothing to buy.  And no money to buy it with.  But Macomb had been told it had nothing to fear but fear itself.  What’s wrong with this opening line?  The line about nothing to fear was from Franklin Roosevelt’s inaugural address – and that was until 1933.  We know we’re being picky, but it was just interesting that this slipped past all the writers and editors.  But it’s still a great, great movie worth renting.
• Brokers currently need a $63,000 net worth to get their FHA mini-Eagle.  Did you know that the Mortgage Bankers Association is pushing to get this requirement raised to $150,000?
• The stimulus package, as passed by the House, increases the government guarantee on certain types of SBA loans to 95%, from 75%.  It will also increase the loan limit on 7(a) SBA loans to $3 million from $2 million.  These are huge changes.
• A former FN M A employee has pleaded not guilty to charges that he installed a computer virus to destroy all the data on 4,000 Fannie Mae computer servers. The Grand Jury indictment alleges that he entered a malicious code the day his employment was terminated. 
• No company or government agency has done more for housing than Fannie Mae, but we still appreciate humor,  Here’re are few highlights from Dave Barry’s Year in Review for 2008:    January:  In what some economists see as a troubling sign, Fannie Mae and Freddie Mac invest $12.7 billion in Lottery tickets.  February:  In the 2008 Super bowl, the New England Patriots lose the to the New York Giants in a stunning upset that confounds the experts, not to mention FNMA and Freddie Mac which  had $38 billion on the Patriots to win.    May: FNMA and Freddie Mac invest $17 billion in a Herbalife franchise.  August:  In yet another troubling economic indicator, FNMA and Freddie Mac rob a liquor store.   September:  The federal government is forced to take over FNMA and Freddie Mac after they are caught selling crack at a middle school.  We love FN M A and all the people there, but humor is humor.

We were discussing our Profitability Review this morning, and it was interesting.  For 2008, the improvement in profit we were able to uncover for clients was split almost 50-50 between lower costs v. increased margins.  What makes us the happiest is when we can help clients lower their costs and increase their gain-on-sale margins.  See you next week – or maybe even on the weekend.
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Joe Garrett and Corky Watts -  Garrett, Watts & Co.  - 410-469-8633