To Our Clients, Colleagues and Friends,

· The latest monthly report from the California Association of Realtors pointed out some fairly remarkable trends in the California housing market.  Statewide supply of inventory fell to 4.5 months of supply, improved from 9.6 months a year ago.  Sales prices were up 1% in April after a 2% rise in March.

· Doesn’t it seem that loan officers should be compensated partly on the quality of their loans?  Is it at all possible to hold back some of the commission to see how the loan performs for the next year, or is that something that no loan officers would ever accept?   We think we know the answer, but we think it could be done in a call center environment. If the loan officer doesn’t like it, it’s not like he has Realtor relationships that he can take out the door with him.

· We know of a company that has kept records forever on everything they sold mandatory and what they would have gotten on a best efforts basis.  Over the past ten years, they have averaged 32 basis points of gain extra going mandatory.   Lowest was 17 in 2006 and the highest is this year where they’re getting 80 basis points more than best efforts. 

· Well, what about paying a wee bit smaller commission for a 95% loan and/or maybe a bit more for a 60% LTV loan?

· Gee, has it already been nine months since Secondary Interactive received an industry award for how they integrated with Optimal Blue?  They’ve now added quite a bit to that integration that allows for real-time data flow from origination to pricing and eligibility and much, much more.

· We love our clients, but we see an awful lot of them where refinances make up for 70-80% of their business.  We saw two recently where it’s 95% of their business.  That’d okay on the make hay while the sun shines theory, but people, please think about what happens the day after. What will you do when refinances dry up?  Do you have a plan?

· Everyone’s excited that Randy Johnson just won his 300^th game, but his real accomplishment is holding the all-time record for hitting the most batters, 188 of them.  Plus a pigeon.  One time a pigeon flew in front of one of his pitches and was struck by a hellacious fastball, causing the poor bird to explode in a cloud of feathers.

· General Motors was part of the 30-company Dow Jones Industrial Index since 1925 but was kicked out of the index this Friday.  It will be replaced by Cisco, and isn’t that a perfect sign of the times, old economy v. new economy?

· General Motors stock is now a penny stock trading on the pink pages.  When the company completes its bankruptcy, the stock will go to zero. Once the mightiest company in America and now on the pink sheets??   How the mighty have fallen.

· The National Spelling Bee was held last week, and for the 7^th time in 11 years, an Indian-American kid won the title, even though people of Indian descent make up only 1% of the U.S. population.  Isn’t it all about the Indian familys’ dedication to education? And haven’t immigrant families and their children always been a source of strength for this country?

· The latest metrics show that at larger banks, there was $16,300 of production income for every $1 million in mortgage loans originations in the first quarter.  That’s 163 basis points.  Not bad.

· Was TARP a good deal for the government? Time will tell, but aside from the 5-8% dividend the government is getting, it’s estimated that the value of the warrants they got from the banks is now almost $6 billion.  We still think that when it’s all wrapped up, the government will have made a lot of money on this program.

• From a Portland mortgage banker:  “If I can respectfully disagree with the SoCal mortgage banker you quoted last issue, we have the best closing and shipping staff in the universe!  In May we closed over $18 million with an $8 million line.  And, our oldest loan was 9 days.”  We know this Portland mortgage banker well, and they have a right to be proud.  A very well managed operation.
• Most banks in thus country are family owned, and owning a bank has generated very good returns for the vast majority.  We were looking at Farmers Bank & Trust, a Kansas bank we know which was founded in 1907 with $10,000 of capital.  W.R. Robbins bought the bank in 1971 (it was about $4 million in size then) and has grown it to $625 million in assets and over $50 million of capital.  That’s an  8.9% annualized rate of return, which can make you very rich over 102 years.
• “Oh it doesn’t matter how big your deficit is, you can just keep financing it by selling bonds” is what some people say.  But there’s no guaranty you can always sell new bonds.  Latvia is in a huge crisis because they went to sell bonds last week and no one would buy them!  About 8-9 years ago we made good money on Latvijas Unibanca, when people talked about the Latvian Miracle.  Now this.
• GM again:  Before their bankruptcy, they had $73 billion in debt.  Post-bankruptcy that will drop to $17 billion.  Pretty smooth move there.  Unless you owned their bonds.

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We really like the sense of rivalry of these two companies which wrote us claiming their back offices were best at getting their loans purchased faster than the other. Bragging about who has the best shipping and closing department demonstrates companies which understand that putting up volume is only part of what drives them.  Put another way, we know many companies who know exactly what their volume was last month, but would have to look up most other metrics.  When someone automatically knows the average length of time his loans were in warehouse, it means that he’s focused on a key metric.  In any manufacturing business, how quickly you turn your inventory can be  a bigger driver of profitability than how many widgets you sell.

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

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