The Garrett, Watts Report (The Day After)

November 27th, 2009 · No Comments



To Our Clients, Colleagues and Friends,

  • We always like it when governments sell off those things that can be better operated by the private sector, so we were pleased to read that Connecticut has sold off its 23 freeway rest stops.  Private equity firm The Carlyle Group paid the State $178 million for the right to re-build and operate them.  Most rest stop bathrooms are pretty gross, so maybe they’ll do something about them.  They also plan to put a Dunkin’ Donuts at each rest stop.
  • Remember how Apple’s share of the PC market dropped to a low of 4.4% a few years back?  Well, they win the Comeback Player Award with a 9.2% market share now.
  • Here’s an interesting office building.  It’s the corporate offices of an Ohio company that makes baskets.
  • Way too many companies we visit let the doc-draw person send docs to escrow without a second set of eyes taking a look at them.  We were in a shop 5-6 years ago where this was the case, and here’s what happened: They were doing a lot of 2-1 arms with a 4.5% rate for the first two years and 2% & 5% caps thereafter.  The doc-draw person assumed that a 5% life cap meant the loan could never go above 5%, which does sound pretty logical, so as a result of no one checking her work, she sent to title a ton of loans which were 4.5% for two years and then 5% for the next 28 years.  Rates were quite a bit higher back then, and these loans had to ultimately be sold at 88.5 for an 11.5 point loss.  If you don’t have a second signature before docs go out, you should probably start doing so.
  • Lenders who’ve gone totally paperless tell us that their loans get purchased a minimum of one day faster!  It was weird walking through San Francisco-based Bay Equity the other day and seeing literarily no loans files.
  • To go paperless, we like what DataTrac has and we also like DocVelocity. Most of the companies we’ve seen successfully make this transition have used the DataTrac piece, but there are other vendors we just haven’t run across yet.
  • Venezuelan Idiot-in-Chief Hugo Chavez is showing his true colors.  He recently praised Carlos the Jackal, the terrorist who murdered innocent people for years throughout Europe, then praised Zimbabwe ’s Robert Mugabe and Iran ’s Mahmoud Ahmadinejad.  To show the world that he’s completely psycho, he then said that Uganda ’s Idi Amin was a good guy who was simply misunderstood.
  • Take a look at the attached Ten Keys to Survival in Tough Times. Are there any specific ones you should pay attention to?  We wrote this in 2007 when the mortgage world was falling apart, but we think it applies just as much today. Number two is critical (Maintain maximum liquidity) as is #7 (Commit to better financial reporting).  When we look at it, though, they all still apply.
  • Congratulations to MVP winners Joe Mauer and Albert Pujols.  To those who nostalgically look back on previous decades as the good old days of baseball, today’s kids will someday look back on the current era as their good old days.  Watching Pujols has to be just as exciting as having watched Ted William s, Babe Ruth or Lou Gehrig 60-70 years ago.
  • We just read a 1954 book about lawyers, and it made us wonder what corporate attorneys charged back then. Maybe $25 an hour, maybe $50?   And now $400 is totally normal, and some New York firms can charge up to $800-900.  What’s the most you’ve seen?
  • We used to think highly of Frontier Bank up in the Seattle area, but we just noticed that their Texas Ratio is 335%.  Once you go over 100%, it’s quite possible you’ll fail, and at 150% it’s highly probable you will.   A very simplified explanation of the Texas Ratio is that 100% means that your capital + your loans loss reserves is exactly equal to your bad loans. There’s more to it than that, but that’s enough to help you understand that for every $100 of capital & reserves at Frontier, they have $335 of “bad” loans.
  • If you’re on the Board of a bank that’s in trouble, you need to be very careful.  The FDIC is going after Directors of failed banks by sending “claim letters” informing them of the intent to sue.  And don’t assume that your D&O insurance policy will protect you.  Many of these policies have exclusions that don’t pay on suits brought by regulatory agencies.  We get asked occasionally to join various bank Boards, and this is a pretty big part of why we decline such invitations.
  • Someone wrote us about the whereabouts of Rod P. of Capitol Commerce infamy, telling us that he lives in the multimillion dollar house that Capital Commerce “built”. is wearing a Mohawk haircut, probably looks like an idiot, races cars, and is apparently living the good life. Question:  Why isn’t this bank robber in jail?
  • Including mortgages in foreclosure, total FHA non-performing loans increased to 17.7% from 17.4%. Subprime delinquency rates increased to 26.4%.  None of this is good news.
  • Have you noticed that the stock of Hormel Foods is up 52% in the past year?  Hormel makes the world’s greatest breakfast food, Spam, and generates over $6 billion in revenue a year.  Bacon and eggs is nice, but Spam and eggs is heaven.  In Hawaii they serve Spam sushi.

We used to think that we would end up someday with only three national papers, the Wall Street Journal, The Washington Post, and the New York Times.  We can probably exclude the Washington Post now, as they just closed their remaining bureaus around the country.  This symbolic retreat from being a truly national newspaper was evidenced by their statement that they need to “… concentrate our journalistic firepower on our central mission of covering Washington … and the region.”

We were in Columbus, Ohio again last week, and we really like it!  A clean, vibrant downtown, nice neighborhoods and friendly people.  Next stop, two days in Seattle where we seem to go at least twice a month. If you have a company or bank in New Hampshire , Vermont , Hawaii or the Virgin Islands , call us and maybe we can give you a special deal. These are all beautiful places we’d like to visit.

Garrett, Watts & Co.

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

Corky Watts  ([email protected])

Joe Garrett ([email protected])

Mike McAuley  ([email protected])

Tags: Commentary · Garrett Watts · Mortgage Market

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