Friday’s job number was down 663,000 as expected with February unrevised (highly doubtful) and January revised lower by 86,000. The markets are not focused on the past and are looking for a significant rebound in economic activity later this year. The Labor Department’s seasonal adjustment number added 114,000 jobs last month which is even more ridiculous when one considers that this faulty birth/death model added 142M in March 2008, added 128M in March 2007 and 135M in March 2006. When the final revisions are announced in a few months an extra 200M+ jobs will have been lost but until the markets care it doesn’t pay to stand in the way.

There are quite a few important parts of the jobs report that are worth reviewing beginning with the startling fact that a year ago the unemployment rate for women and men was almost identical at 4.5 and 4.6%. Today the gender rates have widened to record levels with women at 7.0% and men at 8.7%. Temporary jobs fell 72,000 in March and followed a 77,000 drop in February. Retail payrolls fell 48,000 as consumers are saving and not spending. Aggregate hours worked fell 1.0% after a 0.6% fall in February and 0.7% in January. Employers are cutting hours as a first move and then laying off after as they try to hold onto long time workers. Europe is suffering from a multitude of situations where workers are kidnapping bosses to protest massive layoffs. The only private sector category showing an increase in jobs (+8,000) is education and health services. The scariest chart of the day shows the number of people working part-time because they can’t find a full time job. If this trend continues (there is no reason to believe it won’t) a 10% U.S. unemployment rate should be seen before the end of this year. The last chart shows the number of people unemployed for a second consecutive month but the Labor Department only has figures that go back 15 years. The key to this chart is the fast rate of ascent and its almost perfect correlation with the unemployment rate.

Those without a job will soon run out of jobless benefits despite Congress extending aid twice last year. Originally a maximum of 26 weeks were allowed but Congress added 20 weeks and then another 13 weeks for people in high unemployment states. At least 46 states are witnessing higher joblessness and I’m sure Congress will hear cries soon to raise the maximum weeks again or why not just make it permanent relief? A few of the newly unemployed are trying anything and everything to find a job including TV ads for possible employers. With the number of unemployed soaring it is no surprise that over 32 million Americans or one in ten are receiving food stamps.

The Fed’s weekly H.8 report was released on Friday and shows why Fed head Bernanke will continue to purchase Treasury and mortgage securities for many months (and years) into the future. I want ALL readers to spend a few minutes reviewing this report to really understand how credit is contracting in the U.S. banking system. On line 21 it shows that banks have accumulated over $200 billion of CASH in the past month that is literally sitting at the Fed earning NO interest because banks are afraid to loan the money to anyone other than the Fed! Line 5 shows the total amount of credit from loans and leases and has fallen over $100 billion in the past 30 days and is lower than it was in September 2008! It is any wonder Gold is down almost $25 today at $873? It’s called DEFLATION!!!!

Consumers and banks are saving and that means less spending and less tax revenue for states. Massachusetts reported on Friday that March tax collections fell $309 million in the last year (16.1%) and were $53 million less than their most recent forecast. It is the negative feedback loop I have been writing about for months. Consumers spend less and states reduce their forecasted revenue and then businesses see declines in sales and lay off workers who spend less and the circle begins again.

The high end retail market is suffering from deflation with Prada, Saks and Christian Dior offering new low end ($700) handbags.

The DEFLATION can NOT end until asset prices end their decline and house prices are the most important asset that must hit bottom before they can show a small advance. Quietly last week Fannie and Freddie lifted their moratorium on foreclosures and that is NOT good for house prices. It is interesting that when they initially ended the foreclosures it received a lot of publicity but now I’m sure they don’t want to wake up Congress.

A few years ago FHA loans were a small part of most lenders originations but 2009 has brought them to the head of the pack but BIG trouble is coming soon and a government bailout may not be far behind. 20.7% of all FHA loans issued in 2008 are at least 60 days late whereas only 14.1% of subprime loans that were issued in 2007 are 60 days late. This should not be surprising to anyone as a 3.5% down payment is lost almost immediately with home prices falling every month. We are not even close to the end of the housing crises but the government is too busy wrestling with Congress over AIG, the banks and more regulations to see what is so clear to anyone outside of Washington.

The Comptroller of the Currency released a report Friday that showed re-default rates for modified mortgages continued to rise at the end of 2008. 41% of modified loans in the first quarter of 2008 were 60 days or more late by the third quarter and 46% for loans modified in the second quarter. If house prices continue to fall (and they will) every modified loan will be delinquent within months because homeowners won’t make payments on a house loan when the amount due is more than the value of the house. Add a rising unemployment rate and it’s a recipe for many more years of the U.S. recession/depression.

Banks will not begin loaning money until asset prices stop declining and borrowers believe that asset prices will rise and that borrowing $$ for purchases will create future profits. BUT banks must have adequate capital underlying their loans and a margin between their cost of funds and the rate they are charging their borrowers. Tonight’s final and most important chart shows the net interest margin at ALL US banks for the past 25 years. Notice how it has shrunk to record levels due to a decrease in short and long term interest rates. If a bank’s margin between cost and return is small banks will continue to invest in Treasury notes and bonds that are seemingly risk free. The Fed is aware how important bank profitability is to any potential recovery and Bernanke has made it clear that the Fed will keep the overnight funds rate near zero for a very, very long time. Until asset prices stabilize banks and borrowers will have no reason to come together and the economy will continue to contract.

Knowledge, experience, and integrity of the MLB through whom the transaction may be made or arranged

Market value and equity in the Property and the security for your loan

Borrower’s financial standing and creditworthiness

Escrow process involving the funding of the loan or the purchase of the note

Documents and instruments describing, evidencing, and securing the loan

Loan servicing provisions, authority and compensation

Recovering your investment when the borrower fails to pay

The information that follows will assist you in considering the seven essential elements of a loan transaction which you should understand before funding a loan or purchasing a promissory note. Just read on!

1. Knowledge, experience, and integrity of the MLB through whom the transaction may be made or arranged

Before placing your trust and money with an MLB, you would be wise to call: (1) the Department of Real Estate (DRE) to determine if the MLB and his or her loan representatives are properly licensed, how long each has been licensed, and whether any of the licenses have been disciplined; and (2) the local Better Business Bureau to ask if any complaints have been lodged.

Ask the MLB to provide a professional profile for your review and information as to the approximate number and percentage of loans, if any, negotiated by the MLB which resulted in foreclosure (commenced and/or concluded) during the past few years.

Ask the MLB if he or she is the borrower or if he or she has any relationship to the borrower (e.g., if the MLB is a relative, a shareholder, an officer, a director, or a partner of the borrower). When the MLB is the borrower or related to the borrower, we refer to the transaction as “self-dealing.”

2. Market value and equity of the property and the security for your loan

The purpose of this brochure is to provide basic information which you should know if you plan to purchase existing promissory notes or fund loans, the repayment of which is secured by deeds of trust recorded against California real property. The funding of a loan or the purchase of a promissory note is an investment which involves some risk. Prior to becoming a lender of loans or a purchaser of promissory notes, you should be able to answer the following questions:

1. What is a “promissory note?” A promissory note is a written promise to pay or repay a certain amount of money at a certain time, or in a certain number of installments, or on demand to a named person. It usually provides for payment of interest, and its payment can be secured by a deed of trust.

The person receiving the loan proceeds (borrower) becomes obligated to repay the debt by signing a promissory note which specifies: (1) the amount of the loan (principal); (2) the interest rate (interest); (3) the amount and frequency of payments (debt service); (4) when the borrower must repay the principal (due date); and (5) the penalties imposed if the borrower fails to timely pay or tender a payment (late charge) or decides to pay a portion or all of the principal prior to the due date (prepayment penalty). The promissory note identifies the borrower and the person who will receive the payments (lender or note holder).

2. How do you obtain a promissory note? You obtain a promissory note (become a lender or note holder) by either making a loan or purchasing an existing promissory note. Unless the loan is made or arranged by a real estate broker, a private party when making a loan will be subject to an interest rate ceiling imposed by the California State Constitution. Charging a rate in excess of this ceiling is referred to as usury. Even when purchasing an existing promissory note (unless the purchase is arranged by a real estate broker), a private party, depending upon the fact situation, may still be subject to usury.

A broker who for compensation, or in expectation of compensation, (regardless of form) assists the public in making or arranging loans is commonly referred to as a mortgage loan broker (MLB).

3. What secures your investment? Your investment is secured by a deed of trust recorded against the title of the borrower’s property (the Property). Unlike deposits in a bank or savings and loan, which are generally insured by a federal agency (such as FDIC) and may usually be withdrawn with limited notice, the promissory note: (1) involves some risk to principal (a typical feature of all investments); (2) establishes a specific and predetermined period of time for the repayment of your investment; and (3) does not benefit from insurance issued by a federal agency.

In a deed of trust, the borrower (trustor) transfers the Property, in trust, to an independent third party (trustee) who holds conditional title on behalf of the lender or note holder (beneficiary) for the purpose of exercising the following powers: (1) to reconvey the deed of trust once the borrower satisfies all obligations under the promissory note; or (2) to sell the Property if the borrower defaults (known as a foreclosure). Foreclosure involves the process of selling the Property to a third-party bidder or, in the absence of a sufficient third-party bid, acquiring title to the Property. The foreclosure sale, in most cases, satisfies the debt.

Depending upon the method of foreclosure, the nature of the loan, the circumstances of origination, and the value of the Property, you may or may not be able to recover your entire investment. For example, if a third party bids at a non-judicial foreclosure sale an amount equal to or greater than the amount you are owed (including fees, costs, and expenses of the foreclosure), your investment would be fully paid. On the other hand, if you bid the full amount that is owed to you, including all foreclosure fees, costs, and expenses (full credit bid) and there are no third-party bids, you will generally be limited to the Property and its value as the source of repayment of your investment.

1. What is a “promissory note?” A promissory note is a written promise to pay or repay a certain amount of money at a certain time, or in a certain number of installments, or on demand to a named person. It usually provides for payment of interest, and its payment can be secured by a deed of trust.

The person receiving the loan proceeds (borrower) becomes obligated to repay the debt by signing a promissory note which specifies: (1) the amount of the loan (principal); (2) the interest rate (interest); (3) the amount and frequency of payments (debt service); (4) when the borrower must repay the principal (due date); and (5) the penalties imposed if the borrower fails to timely pay or tender a payment (late charge) or decides to pay a portion or all of the principal prior to the due date (prepayment penalty). The promissory note identifies the borrower and the person who will receive the payments (lender or note holder).