{"id":71632,"date":"2009-12-08T17:50:54","date_gmt":"2009-12-08T22:50:54","guid":{"rendered":"http:\/\/mortgagenewsclips.com\/2009\/12\/08\/the-garrett-watts-report-dec-7-2009\/"},"modified":"2009-12-08T17:50:54","modified_gmt":"2009-12-08T22:50:54","slug":"the-garrett-watts-report-dec-7-2009","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/71632","title":{"rendered":"The Garrett, Watts Report (Dec. 7, 2009)"},"content":{"rendered":"

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\"garrett-watts1\"<\/a> <\/p>\n

To Our Clients, Colleagues and Friends,  <\/p>\n

\u00b7 During the crazy times, everyone used to get Lucites when a deal was done. No more. Coffee mugs with the banks name and logo are the thing now, and we actually like collecting them from clients.  A white mug with your name and logo stands out the most.  We have some from bank mugs which are dark, and no matter what the color of the lettering, it just doesn\u2019t stand out.  Keep this is mind next time you place an order.<\/p>\n

\u00b7 New York Community Bank took over Amtrust (i.e. the old Ohio Savings Bank), and we\u2019ve always been intrigued by the former\u2019s lending strategy. Almost all their lending is first lien mortgages against New York City apartment buildings that are rent controlled. Their theory is that if a building is rent controlled, its rents are low enough to make certain the building is always fully occupied. And if the loan has a good DSC ratio to start with, full ongoing occupancy makes that loan good as gold. 
Why did they want Amtrust when they\u2019re almost totally focused on New York City ? Well, they got $4 billion in cash, zero construction loans, zero non-performing loans, plus $4 billion in ultra cheap money market deposits.  We know some good people at Amtrust, and we hope things work out for them.<\/p>\n

\u00b7 There\u2019s no question that there are many banks that need to be shut down, but there are also banks being forced into failure by overly harsh regulatory orders.  Some banks being seized might survive if only management were given time to work through their problems. Not many, but some!  Rather than being overly punitive on banks now<\/i>, shouldn\u2019t they have done that a few years ago when real estate lending got out of hand?  You don\u2019t take the punch bowl away after<\/i> everyone\u2019s passed out or tossing their cookies, you do it before<\/i> the party gets too wild.
Regulators should have been tougher a few years ago, and for those who\u2019ve proven their past ability to work through problems, they should loosen up a little bit now.  Consent Orders can make it difficult or impossible to turn a bank around, and aren\u2019t there some banks where you want to make it easier<\/i> and not harder for them to succeed?<\/p>\n

\u00b7 An experiment was done with Cal \u2019s library program to lend framed art for undergraduates to hang in their dorm rooms.  One group was told that they could exchange any print they weren\u2019t happy with, with unlimited exchange rights.  The other group was told that there were no returns at all, and whatever they chose, they had to keep all semester.  At the end, both groups were surveyed as to their satisfaction with the program.  Which group do you think liked it better? In a bit of a surprise, the ones given no choice were much, much happier with the program.
We think about this experiment from time to time when we look at various programs offered by banks.  When Garrett, Watts opened its first checking account way back when, we were offered an endless number of account types, with every combination and permutation of fees, number of checks permitted and so on. We remember asking, \u201cDon\u2019t you have just a basic<\/i> business checking account?\u201d  People seem to want multiple choices in supermarkets and when dating, but this may not be the case with bank offerings.<\/p>\n

\u00b7 In 1979 General Motors had over 618,000 employees.  Today it\u2019s about 75,000, for a 87.9% shrinkage in the workforce.  Can someone look up GM\u2019s market cap at its peak versus what it is today?  It would be fascinating in a sort of morbid way.  <\/p>\n

\u00b7 Thirty years ago, GM had a 50% market share of all auto sales in the U.S.   Today it\u2019s struggling to stay at 20%.  If you\u2019re in a bookstore (remember those?), there\u2019s a bazillion books on how to succeed in business without really trying.  But there are very, very few books that study the colossal failures.  We consciously don\u2019t read books like The One Minute Manager<\/i> or the ridiculous Who Moved My Cheese<\/i>, but we might read a book that explores the commonalities among companies that fail.<\/p>\n

\u00b7 Freddie Mac demanded re-purchases  of $2.7 billion of single-family mortgages to lenders for the first nine months of the year, and our clients are getting more and more of those scary re-purchase letters!  The past year or so, we hear that when FNMA takes back a property, they make the seller of the loan repurchase it in about 25% of the cases. <\/p>\n

\u00b7 Just because you don\u2019t sell to FNMA, you don\u2019t get to ignore the buybacks mentioned above.  If you sell to Chase, BofA, Wells, or Citi,they<\/i> sell your loans to FNMA, and if they have to buy them back from FNMA, they\u2019re going to make you buy them back from them, or at least make them whole.  But you already knew that.<\/p>\n