“If your boat’s broke and you’re not, please call us.”  So reads a sign at a marine service shop in rural Illinois.

“Flat is the new up,” reported Barron’s about Friday’s employment report.  They might as well have been writing about mortgage application volume.  Mortgage rates have fallen 1.00% (from near 6.00% range to below 5.00%) since peaking in June.  Unfortunately, mortgage application volume hasn’t responded.  The MBA application index rose slightly above 600 a couple of weeks ago.  Big deal.  It was above 1200 earlier this year when rates were below 5.00%.  Refinance efficiency is at an all-time low.

The cash continues to dwindle at the FHA.  The FHA’s problems stem from its rapid transition from a wallflower to the most popular student in class.  The agency insured $360 billion of single-family loans in fiscal 2009 — five times as much as it insured in fiscal 2005. Today, about half of first-time homebuyers turn to the FHA. Though quite a few of these new loans are of marginal quality, the FHA says that the average quality of its booming portfolio has increased, if only because good borrowers have so few alternatives.

Headlines and talking heads latched on to Friday’s way-better-than-expected employment report.  It showed a drop in the unemployment rate to 10%, and whacked the bond market (mortgage prices lost 0.50% on Friday).  You might ask how the unemployment rate could fall while jobs were lost and the population grew.  For the record, last month’s 10.2% measurement was too high due to sampling error, and this month’s report was as much a data correction as anything.

The unemployment rate is not headed much lower, and will very likely be near 10% for many years to come.  Since December of 2007, the month that the recession officially began (the unemployment rate was 4.9%), 7.3 million jobs have been lost.  We would need about 15 million new jobs over the next five years just to get back to where we were when the recession started.  That’s 250,000 new jobs every month for five years.  That works out to a need for about 125,000 new jobs each month to handle new workers coming into the market (which comes to a total of 7.5 million over five years), plus the 8 million and rising jobs we’ve lost.  Only once, in 1999, did we actually add over 250,000 jobs a month for a whole year. And that was during the internet boom.  We are looking at an employment future much like present-day Europe, which has had 10% unemployment for years.  John Mauldin offers one solution:  create an environment where small business can thrive. Government spending does not increase GDP over time.  It takes private investment to create jobs and increase productivity.

While not altogether surprising (given recent news), it was still a shock to see AmTrust Bank fail on Friday.  AmTrust was a very well-run bank managed by smart, hard-working people.  They were simply too deep in to mortgage lending in the wrong markets.

“Keep calm and carry on.”  So reads a British government propaganda poster created in 1939, now decorating offices.

President Obama gave a speech at West Point the other night.  He was going to give the speech at the White House, but he wanted a place with better security.  – Jay Leno

Thanks for your business and have a good week.            — Tom Millon

Market	Close	Wk Chg
30-Yr Agency Note Rate	4.97%	0.19%
30-Yr Mortgage Yield	4.25%	0.31%
Note Rate vs. MBS Yield	0.72%	-0.12%
Mortgage-Treasury Spread	2.01%	0.11%
10-Yr Treasury	3.47%	0.27%
2-Yr Treasury	0.83%	0.15%
10yr- to-2yr Spread	2.64%	0.12%
Fed Funds	0.13%	0.00%
Fed (Feb ‘10)	0.18%	0.03%
Fed (June ’10)	0.33%	0.09%
Dow Industrials	10,389	+80