Unemployment Rate Jumps

Real news From ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Investor sentiment about the economic recovery fell this week, and the
stock market declined. Expectations for slower economic growth are
favorable for bond markets, including mortgage-backed securities (MBS),
and mortgage rates ended the week a little lower. (5.125%)

The important monthly Employment report showed mixed results. Against a
consensus forecast for a loss of -225K jobs in August, the economy lost
-216K jobs. This was the smallest level of monthly job losses since
August 2008 and was far below the monthly average of -691K seen during
the first quarter of the year. The biggest surprise in the data came
from the Unemployment Rate, which jumped from 9.4% to 9.7%, the highest
level since 1983. The unexpected increase was mostly due to previously
discouraged workers returning to the labor pool to look for jobs.
Average Hourly Earnings, a proxy for wage growth, rose at a moderate
2.6% annual rate.
The future of Fannie Mae and Freddie Mac made the headlines this week
when the Mortgage Bankers Association (MBA) released its restructuring
proposal. While the MBA suggested the elimination of the two agencies,
it would replace them with new entities which would perform many of the
same functions, with many of the same people. Its plan would maintain a
government guarantee of principal and interest for MBS investors. The
two agencies have played a pivotal role in keeping mortgage rates low
and in expanding homeownership, and the MBA proposal would retain these
benefits. It's very early in the process, and the Obama administration
indicated that its proposals for Fannie and Freddie may not be revealed
until early next year.