{"id":114355,"date":"2009-12-30T06:17:57","date_gmt":"2009-12-30T11:17:57","guid":{"rendered":"http:\/\/mortgagenewsclips.com\/2009\/12\/30\/the-garrett-watts-report-dec-30-2009\/"},"modified":"2009-12-30T06:17:57","modified_gmt":"2009-12-30T11:17:57","slug":"the-garrett-watts-report-dec-30-2009","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/114355","title":{"rendered":"The Garrett, Watts Report (Dec. 30, 2009)"},"content":{"rendered":"<p><a href=\"http:\/\/garrettwatts.com\/\"><img loading=\"lazy\" decoding=\"async\" style=\"border-bottom: 0px; border-left: 0px; border-top: 0px; border-right: 0px\" src=\"http:\/\/mortgagenewsclips.com\/wp-content\/uploads\/2009\/12\/garrett-watts112.png\" border=\"0\" alt=\"garrett-watts1\" width=\"353\" height=\"77\" \/><\/a><\/p>\n<p>To Our Clients, Colleagues and Friends,<\/p>\n<ul>\n<li>CNBC listed the governments most likely to default on their bonds.\u00a0 Starting with the most likely, they are, in order: Venezuela , Ukraine , Argentina , Pakistan , Latvia , Dubai , Iceland , Lithuania , California (huh?), and Greece .\u00a0 No way will California default, but the rest look pretty shaky. Shorting Ukrainian or Venezuelan bonds might sound like a no-brainer, but how the heck do you find those bonds to borrow in the first place?<\/li>\n<\/ul>\n<ul>\n<li>GSE Update:\u00a0 (1) The federal government so far has provided $60 billion to FNMA and $51 billion to Freddie Mac, (2) in return for the investment, the government got preferred stock paying dividends of 10%, (3) the dividend is yielding $11 billion a year to the taxpayers, and (4) executive compensation at the two agencies is down 40% from the pay levels before the conservatorship.<\/li>\n<\/ul>\n<ul>\n<li>We mentioned Don King last issue, and we should point out three reasons we like him: (1) he\u2019s a highly successful businessman who\u2019s made millions as a fight promoter, (2) if you ever listen to him, he\u2019s terribly bright and will quote Ayn Rand, Rousseau and Kierkegaard all in the same sentence, and (3) how can you not love a guy with that haircut?<br \/>\n<a href=\"http:\/\/mortgagenewsclips.com\/wp-content\/uploads\/2009\/12\/j12.jpg\"><img loading=\"lazy\" decoding=\"async\" style=\"border-bottom: 0px; border-left: 0px; border-top: 0px; border-right: 0px\" src=\"http:\/\/mortgagenewsclips.com\/wp-content\/uploads\/2009\/12\/j1_thumb2.jpg\" border=\"0\" alt=\"j1\" width=\"117\" height=\"115\" \/><\/a><br \/>\nKing impresses us as the kind of guy who\u2019d have been successful at whatever he did. If he owned a bank, he\u2019d probably be a CAMELS 1.<\/li>\n<li>With the shrinking of manufacturing, Big Steel and car assembly plants across the land, we wonder if maybe medical research and medical services will replace them.\u00a0 Cleveland no longer epitomizes the steel and automobile industries as it once did, but when we were there a few months ago, the Cleveland Clinic and related hospitals seemed to be really thriving. Baltimore lost its GM assembly plant, and a Bethlehem Steel plant that once employed 30,000 people is down to just a few hundred. But John Hopkins Medical School is now Baltimore \u2019s largest employer, and hospitals and large biotech parks have been sprouting up.\u00a0 As they say, one door opens as another one closes, and maybe medicine and biotech will be the next engine to pull our economy forward.<\/li>\n<\/ul>\n<ul>\n<li>We once were doing a FOCIS-<em>plus<\/em> Review at a mid-Western bank, and we were working in a cubicle right next to the call center.\u00a0 We couldn\u2019t help overhearing what a lot of the Loan Officers were saying, and it seemed that some statements were being made that put the bank on thin compliance ice.\u00a0 (\u201cI can guarantee you that rates are headed upwards\u2026.. Let\u2019s lock you in now, and if rates drop, you\u2019ll automatically get the lower rate\u2026.. You don\u2019t need to call around, \u2018cuz I guarantee you that ours are the lowest rates you\u2019ll find anywhere in the country.\u201d)<br \/>\nWe\u2019d like to suggest you hire some Mystery Shoppers, maybe someone who worked for you once and who knows the business.\u00a0 You can check up on service levels that way, but you\u2019ll also find out if your people are putting you at risk by what they\u2019re telling borrowers.\u00a0 By the way, a very young Mike McAuley and his lovely wife Marie, once were <em>real<\/em> mystery shoppers. They mostly ate at restaurants and reported on what they experienced, and is that a cool job for a young couple, or what?\u00a0 Mike will tell you that \u201cThe only catch was that while we got paid for dining on all four courses, we had to check out each bathroom very carefully.\u00a0 It was a tough call whether to do that before or after the meal.\u201d<\/li>\n<\/ul>\n<ul>\n<li>The latest FDIC<em> Supervisory Insights<\/em> reveals that 20% of all banks have more than half their assets in long terms assets.\u00a0 In 2006, longer-term assets made up the majority of assets at only 11% of the banks.\u00a0 From our own observation, it looks like most of it is banks holding onto GNMA or FNMA mortgage backed securities.\u00a0 Yes, the yield is good, but do you really want to own 30 years paper in this environment where rates are likely to go up?<\/li>\n<li>Every time a bank fails, the FDIC\u2019s Inspector General writes a report on what happened.\u00a0 We were reading the IG\u2019s Report on Silver State Bank in Nevada , and it reported that \u201cA significant portion of the EVP\u2019s compensation was based on loans they originated.\u00a0 In addition to a salary, the EVP, along with his loan officers, received a production-based incentive of 10% of any loan origination fees and 3% annual bonus on their average outstandings.\u00a0 These compensation arrangements did not emphasize loan quality.\u201d\u00a0 Interesting.\u00a0 Since loan performance wasn&#8217;t a factor in bonuses, why not go make tons of high risk, high-fee CRE and construction loans?\u00a0 This is, of course, precisely what they did, and it finally killed them.<\/li>\n<\/ul>\n<ul>\n<li>If your bank gets a C&amp;D, how much time do you have?\u00a0 Each one is potentially different, but we\u2019ve seen many that give the bank months to raise capital and implement other changes.\u00a0 But not always.\u00a0 We were reading the Inspector General\u2019s report on Lew Ranieri\u2019s Franklin Bank in Texas , and they got a C&amp;D on November 4, 2008 and were closed on November 7<sup>th<\/sup>.\u00a0 The C&amp;D directed the bank to raise more capital, but three days isn\u2019t exactly enough time.<\/li>\n<\/ul>\n<ul>\n<li>Our FOCIS Review for Warehouse lenders has always looked at what percentage of revenue is paid out to the owners of mortgage banks, so we were interested to read that a Harvard Law school professor looked at 2,000 companies to see what percentage of total compensation earned by the top five executives went to the CEO. His research showed that the higher the amount that went to the CEO, the lower the company\u2019s future profitability. It\u2019s not quite the same as what we look at, but it\u2019s revealing and not that surprising.\u00a0 Maybe it\u2019s like pitchers in their first season after signing a big contract. They just don\u2019t seem to do as well as when they\u2019re in the last season before free agency.<\/li>\n<\/ul>\n<ul>\n<li>We saw and liked <em>Avatar<\/em> and would give it a solid 8.0.\u00a0 The visuals are stunning, and the avatars themselves look 100% real.\u00a0 The movie involves a love affair between the avatar of a U.S. Marine and a woman from another planet (there\u2019s even some ardvarking between them) but it\u2019s also a great adventure, with a battle scene as good as any you\u2019ve ever seen.\u00a0 It\u2019s also about an indigenous people who are very much a part of nature, a primitive species is attacked by high tech U.S. Marines. It\u2019s not really thought-provoking, but it\u2019s great entertainment.<\/li>\n<\/ul>\n<ul>\n<li>When you read about the \u201cprivate militia\u201d the Iranian regime uses to attack protestors, doesn\u2019t it remind you of the Nazi Brown Shirts?\u00a0 Democratic governments have armies and police.\u00a0 They do <em>not<\/em> have private militias.<\/li>\n<li>In looking at the high points and low points of the past year, a definite highpoint was that they finally got Roman Polanski.<\/li>\n<li>Eugene Burdick was a Cal professor of political science who wrote <em>Failsafe<\/em> and <em>The<\/em> <em>Ugly American<\/em>. We were re-reading his first novel, <em>The<\/em><em>Ninth Wave<\/em> and we found the following dialogue between two college freshmen: \u201cHow long will my two hundred bucks last me at Stanford?\u201d\u00a0 \u201cNot very long.\u00a0 Tuition is $115, room and Board is $120 a quarter.\u00a0 Books will cost a little.\u201d\u00a0 The book was published in 1956, and it looks like a full year at Stanford was well under $1,000 a year back then.\u00a0 It\u2019s now $53,000 or so.\u00a0 All the private colleges are about the same.<\/li>\n<li>With most movies, you only meet the characters bit by bit. One of the things we liked about <em>Goodfellas<\/em> was how you meet the entire cast within the first minute or two.\u00a0 Here\u2019s a part of that introduction, after you\u2019ve met the leading characters. http:\/\/www.youtube.com\/watch?v=ZD3y43cyddI a long<\/li>\n<li>With compliance being such a big issue, we have two professionals we can recommend.\u00a0 The first is Pam Strickland , the top Compliance Consultant we know.\u00a0 We think she only does California , but you can ask her (www.<a href=\"http:\/\/www.pamstrickland.com\/\">pamstrickland.com<\/a>).\u00a0 Whatever she charges is worth it compared to the cost of non-compliance if you get caught.<br \/>\nThe other professional we can recommend is attorney Dave Medlin of Medlin &amp; Hargrave (510-832-2900). Many of our clients know him because he helped them dodge loan re-purchases, but he probably knows more about mortgage law (as well as mortgage compliance) than anyone we know.\u00a0 Wait.\u00a0 We\u2019d put him and attorney Mike Huber (801-733-5807) in the same category.\u00a0 We think highly of both.<\/li>\n<\/ul>\n<p>On of the great lines from The <em>Merchant of Venice<\/em> is when Portia says that \u201cThe quality of mercy is not strained.\u00a0 It drops as the gentle rain from heaven upon the place beneath, and it is twice blessed.\u00a0 It blesses him that gives and him that takes.\u201d It\u2019s been a hard year for many people, so let\u2019s all work toward showing more mercy and compassion in the coming year.<\/p>\n<p><a href=\"http:\/\/garrettwatts.com\/\">Garrett, Watts &amp; Co.<\/a><\/p>\n<p><strong>Bonuses:\u00a0\u00a0\u00a0\u00a0\u00a0 <span style=\"color: #0000ff;\"><a href=\"http:\/\/www.scribd.com\/doc\/24614801\/A-Dog-s-Graduation\">A Dog&#8217;s Graduation<\/a><\/span> and\u00a0\u00a0\u00a0\u00a0 <span style=\"color: #0000ff;\"><a href=\"http:\/\/www.scribd.com\/doc\/24614805\/Healing-a-Sick-Bank\">Healing A Sick Bank<\/a><\/span><\/strong><\/p>\n<p><em>Helping mortgage lenders increase revenues, control costs, and better manage risk.<\/em><\/p>\n<p><em> <\/em><\/p>\n<p>Joe Garrett\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (<a href=\"mailto:JGarrett@GarrettWatts.com\">JGarrett@GarrettWatts.com<\/a>)<\/p>\n<p>Mike McAuley\u00a0\u00a0\u00a0\u00a0\u00a0 (<a href=\"mailto:MMcauley@GarrettWatts.com\">MMcauley@GarrettWatts.com<\/a>)<em> <\/em><\/p>\n<p>Corky Watts\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (<a href=\"mailto:CWatts@GarrettWatts.com\">CWatts@GarrettWatts.com<\/a>)<\/p>\n<div class=\"feedflare\">\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?a=tCm07vZyFrI:cOd7afSl6kg:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?a=tCm07vZyFrI:cOd7afSl6kg:D7DqB2pKExk\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?i=tCm07vZyFrI:cOd7afSl6kg:D7DqB2pKExk\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?a=tCm07vZyFrI:cOd7afSl6kg:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?i=tCm07vZyFrI:cOd7afSl6kg:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?a=tCm07vZyFrI:cOd7afSl6kg:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/mortgagenewsclips\/qTBe?i=tCm07vZyFrI:cOd7afSl6kg:V_sGLiPBpWU\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/mortgagenewsclips\/qTBe\/~4\/tCm07vZyFrI\" height=\"1\" width=\"1\"\/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>To Our Clients, Colleagues and Friends, CNBC listed the governments most likely to default on their bonds.\u00a0 Starting with the most likely, they are, in order: Venezuela , Ukraine , Argentina , Pakistan , Latvia , Dubai , Iceland , Lithuania , California (huh?), and Greece .\u00a0 No way will California default, but the rest [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-114355","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/114355","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=114355"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/114355\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=114355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=114355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=114355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}