March 2010 - The Garrett Watts Report

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The Garrett Watts Report shares stories and day to day experiences of veteran industry consultants Joe Garrett, Corky Watts and Mike McAuley. Writers observe and examine the micro-mortgage market from a viewpoint that helps lenders of all sizes increase revenues, control costs and better manage risks.

Learn more about the authors and their services:
Garrett, Watts & Company | http://www.garrettwatts.com

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Raising Capital to Grow Your Mortgage Operation: Preferred vs. Common Stock

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by C.M. "Corky" Watts, CMB on March 30 2010, 8:33 AM

If you are considering raising capital today, take some time to understand the difference between Common and Preferred Stock. If you are looking to maintain control and ownership, Preferred is probably the best approach. Many investors today also consider...
Bank Ratings and Secondary Market Revenue Leakage

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by C.M. "Corky" Watts, CMB on March 29 2010, 2:20 PM

We hate to sound like a nag, but what are you doing to track your leakage? If you’re building in a profit of, say, 150 bps on FHA loans, are you realizing those 150 bps when the loan is purchased? We see companies that will build in 150 bps, and on...
Managing a Mortgage Operation While Still Originating Loans

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by C.M. "Corky" Watts, CMB on March 26 2010, 10:51 AM

We recently reviewed a FOCIS-plus study with board members and management of a small mortgage bank. What was interesting about this company was its structure. The board was made up of 7 shareholders, all them producing loan officers of the company....
Best Effort Loan Pricing vs. Mandatory Commitments: Making the Transition

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by C.M. "Corky" Watts, CMB on March 24 2010, 8:59 AM

We look at the most recent results of the difference between best efforts and mandatory delivery. There are four key areas a mortgage banker must develop and implement to ensure a successful transition to mandatory delivery and generate the spreads...
Proper Organization of Mortgage Operation Financial Reports Identifies Inefficiencies

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by C.M. "Corky" Watts, CMB on March 22 2010, 9:34 AM

It’s hard to manage a company without have the details of revenues, cost of goods sold and expenses. Appropriate placement of the details on the P&L is equally important. Without the details and relevant format, management, boards and shareholders...
Mortgage Bank Liquidity. Key Metrics and Price to Earnings Ratios

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by C.M. "Corky" Watts, CMB on March 19 2010, 2:12 PM

Would you invest in a company laden with huge amounts of debt and moderate growth or a company with high growth and no debt? What if the choice were between countries with those profiles, one with tons of debt and one with no debt. You’re given a choice...
Discussing the Attributes of Successful Mortgage Operation Leadership

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by C.M. "Corky" Watts, CMB on March 18 2010, 9:17 AM

We perform our FOCIS audit for warehouse lenders looking to identify hidden risks and potential “tapebombs” that may result in unexpected losses. We also perform FOCIS-plus studies for management and boards of mortgage companies who are looking for ways...
Raising Capital to Help Grow Your Mortgage Operation

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by C.M. "Corky" Watts, CMB on March 16 2010, 12:30 PM

There is a saying in the business world that “you raise money when you don’t need it”. With the many changes in the industry, there have become many opportunities. The smart operators are raising money today so they can exploit those opportunities in...
Ranking the Largest Banks by Assets; Warehouse Lending; More on Mandatory vs. Best Efforts; Funding Costs Are Really Cheap

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by C.M. "Corky" Watts, CMB on March 15 2010, 12:10 PM

Let’s pretend you’re a bank and you’re funding mortgages today with Fed Funds. Fed Funds will cost you 16 bps, and let’s say you’re closing 5% loans. Your spread while you hold them in warehouse is 4.84%, and let’s assume you’ll hold these loans for...
What Did Top Performing Mortgage Bankers Earn in 2009?

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by C.M. "Corky" Watts, CMB on March 11 2010, 12:07 PM

Top performing mortgage bankers made 90-100 bps per loan. That means, for every $100 million you closed, you should have (and could have) earned $900,000 to $1 million. If you didn’t make this much, you need to look carefully at why you didn’t....
Mortgage Portmanteaus -- Brankers and Broanchers vs. Net Branches

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by C.M. "Corky" Watts, CMB on March 11 2010, 12:48 PM

A portmanteau means a blend of two or more words and their meanings into one new word. An example is the word brunch meaning breakfast +lunch. Another is smog meaning a combination of smoke and fog. Some would consider a portmanteau a type of word...
Risk Weighted Returns; Warehouse Lending Credit Manager Needed; Subprime Analysts Lost; Bank News

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by C.M. "Corky" Watts, CMB on March 08 2010, 10:29 AM

Frank Sinatra’s son was kidnapped on a Friday in 1963, and the singer called up Bank of America, Security Pacific and a few other big banks asking for $240,000 to pay the ransom money. The big banks told him to come in Monday morning and fill out a loan...
HVCC is Here to Stay. Any Chance for Improvements to the Process?

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by C.M. "Corky" Watts, CMB on March 08 2010, 3:01 PM

HVCC has been a challenge for originators who don’t have the flexibility they had in the past. Some mortgage bankers complain there are quality issues with appraisals and order a review appraisal before approving a loan. Some appraisers are complaining...
The Downside of Hedging Interest Rate Risk with Mandatory Loan Commitments

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by C.M. "Corky" Watts, CMB on March 05 2010, 12:10 PM

Mandatory commitments offer the opportunity to increase profits and even lower rates, but we must point out the risks associated with mandatory committing. There are controllable and uncontrollable risks associated with managing interest rate risk yourself...
FDIC: Banks Operating at 79% Loan-to-Deposit Ratio

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by C.M. "Corky" Watts, CMB on March 03 2010, 12:24 AM

Those of you who aren’t commercial bankers might ask what the heck is the loans-to-deposit ratio?. Essentially, it’s this: (1) You have $100 in deposits. (2) How many of those dollars do you put into loans? That’s it. Mortgage bankers ask us where...

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