To Our Clients, Colleagues and Friends,

• Last week we wrote about the need for succession planning.  Here’s an e-mail we got from compliance consultant Pam Strickland :  One of my clients was killed in an apparent robbery last week.  He was the sole owner of his company, with no succession plan, no will, no one else signed on the company accounts, sole officer, sole director…and a good sized, growing mortgage company.  The wife and employees have been scrambling this week to get this under control…right in the midst of their grief.  Yes, please advise EVERYONE to have a good plan in place!   A perfect example of why this is necessary..

• Lest we forget, next Sunday (June 8, 1982) marks the 27^th anniversary of President Reagan’s speech before the British House of Commons when he called the Soviet Union The Evil Empire. We’ve spoken with lots of people who had lived behind the Iron Curtain, and they told us that when word leaked out about Reagan’s speech, it gave them hope they hadn’t had in decades. Political prisoners in the Gulag banged it out to one another in Morse code.  Then five years later, on June 12, 1987, he called on Gorbachev to tear down the Berlin Wall.
  Those two Reagan speeches acted as bookends to President Kennedy’s tough-guy 1961 speech in Berlin where he called on those who thought Communism was the future to “…come to Berlin ” and see for themselves.  People often ask what caused Soviet communism to fail. The real question is not why it failed, but why it lasted so long.  The answer, of course, is that it terrorized its people and ran a murderous police state in which all dissent was squashed, usually with the midnight knock and a bullet in the neck.  We owe a debt to Ronald Reagan, Margaret Thatcher, John Kennedy, Lech Walesa, Pope John Paul II and everyone else who helped end the most evil reign in history.
• Warehouse lenders tend to look at liquidity as a percentage of net worth, and while we also do so, we also look at liquidity as basis points per fundings.  For example, if a company funds $100 million with $1 million of cash, their liquidity equals one point per loan.  It depends on your haircuts, when you pay commissions and some other variables, but we generally like to see a minimum of 1.75 points per loan.  On a $100 million month, we’d like to see liquidity of $1.75 million.
• Speaking about liquidity, we see too few of you with good cash flow models.  You really do need something to project your cash inflows and cash outflows for 3-4 weeks, or someday, it’s quite possible you’ll have a nasty surprise.   We know we sound like a broken record, but people, please pay attention.  Liquidity planning is important.
• The phrase “sounds like a broken record” from above:  If you’re 35 years or younger, do you even know what that means?
• In 2002, the federal government was running such huge surpluses that the national debt was on schedule to be paid down to zero in the year 2011.  That’s only two years away; instead, it now sits at well over $10 trillion.
• If there were a graveyard for banks, we’d see tombstones for Manufactures Hanover (Manny Hanny), Bankers Trust, First Chicago, Bank of Boston, Interfirst and First Interstate,  Irving Trust and Barnett Banks.   CoreStates and Citizens & Southern would be there, along with Continental Illinois, Seafirst, Rainier and NBD Bank (Which everyone used to call Nice but Dull).
• If you were around in the 1960’s and 1970’s, you remember when there were over 7,000 S&Ls. Now, there are only 826 left.  Isn’t that shocking?  Remember those great companies like Great Western, Home Savings, American, Gibraltar , Gold Dome, and Imperial?     
• Going mandatory will give you a good margin over best efforts, but don’t forget that you’ll also pick up a little extra by delivering into the 3 or 5 day window rather than the 15 or 30 day delivery.  We’re always a bit surprised at shops that stay with best efforts even after they’ve grown quite big.
• Only 3 pitchers with over 300 innings in a season ever gave up fewer than 6 hits per game.  Three that did were Sandy Koufax with 5.79 hits per 9-innings in 1965, Bob Gibson with 5.85 (1968), and Nolan Ryan with 5.98 (1974).  A few others who were close: Vida Blue (1971) and Walter Johnson (1913) both with 6.03 and Babe Ruth when he was a pitcher with 6.4 hits per nine innings (1916).  
• If you run a commercial bank or thrift with a mortgage subsidiary, be sure to have mortgage banking on your Board agenda at every meeting.  If your mortgage operation is of size, you might even form a mortgage banking committee to provide oversight.  With loan volumes up at bank-owned mortgage operations, you can count on closer regulatory scrutiny, and they’ll be looking for more Board oversight.
• And isn’t it encouraging to see the banks raising capital again?  Flagstar led the way when no one thought it possible, the big banks have been raising billions in the last few weeks, and John Kanas and his group recently bought and r-capitalized Florida ’s biggest bank.  The banking crisis is pretty much over, and it’s now mostly a matter of working through non-performing loans and re-building capital.
• And how about that Zack Greinke of the Kansas City Royals? He’s one of only two pitchers in the past 40 years to have a sub-1.00 ERA after ten starts.  He’s at 0.84, and the last one to break 1.0 was in 1966 (Juan Marichal at 0.59).
• When we ask people whom they sell to, it’s always, “Oh, you know, Chase, Citi, BofA, and Wells…. the usual.”  We love these companies, but wait a moment, let’s not forget Flagstar and Taylor, Bean, two fine investors that many of you also sell to.
• Who’d you have dinner with last night?  One Paris evening in May, 1922, Marcel Proust, James Joyce, Stravinsky and Pablo Picasso all had dinner together.  Proust and Joyce wrote books that are impossible to read, we never liked Picasso’s art that much, and we know nothing about Stravinsky.  But it must have been a pretty interesting dinner, don’t you think?  If you could pick 3-4 people, alive or dead, to eat dinner with, whom would you choose?

One thing you can do quickly this week is to develop your succession plan.   After doing that, let’s all read a book and not watch TV.   Groucho Marx once said “”I find television very educating. Every time somebody turns on the set, I go into the other room and read a book.”   We might even get out an extra newsletter this week to make up for last week’s shortfall.  Maybe.  See you soon, okay?

Joe Garrett and Corky Watts  -   Garrett, Watts & Co.  -  510-469-8633   

“Helping mortgage lenders increase revenues, control costs, and better manage risk.”