MBS MID-DAY: Near Intraday Highs

January Existing Home Sales beat economist expectations but home prices fell to their lowest level since April 2002. Earlier this month rates would've likely risen on the improved sales print, but the bond market is benefiting from the weaker home price headline today. This illustrates shifting technical momentum. The deck isn't stacked as high against Treasuries as it was following the range breakout that occurred after the January Employment Situation Report was released. This is another sign of positive progress for the mortgage rates outlook.

*** JAN EXISTING HOME SALES 5.36 MLN UNIT ANNUAL RATE (CONS 5.24 MLN) VS DEC 5.22 MLN (PRV 5.28 MLN)-NAR *** JAN EXISTING HOME SALES +2.7 PCT (CONS -2.1 PCT) VS DEC +12.5 PCT (PREV +12.3 PCT)-NAR *** JAN INVENTORY OF HOMES FOR SALE -5.1 PCT TO 3.380 MLN UNITS, 7.6 MONTHS' SUPPLY-NAR *** JAN NATIONAL MEDIAN PRICE FOR EXISTING HOMES $158,800, -3.7 PCT FROM JAN 2010-NAR *** NAR SAYS 37 PCT OF U.S. JAN EXISTING HOME SALES WERE DISTRESSED SALES VERSUS 36 PCT IN DEC *** JAN EXISTING HOME SALES MEDIAN PRICE LOWEST SINCE APRIL 2002

We'll get data on Existing Home Sales in a few moments, and that data will meet a bond market with a 3.45% 10yr note. FNCL 4.5's are at 101-13 and have been cutting a fairly tight range this morning. Previous EHS were at an annualized pace of 5.28 mil. Forcasted today at 5.24 mil

What is the public hearing and seeing regarding the April Fool's Day changes? Per the N.Y. Times, "Starting April 1, under a new compensation rule from the Federal Reserve, borrowers who get their mortgages through brokers will most likely pay less for their services and must be offered the lowest possible interest rate and fees for which they qualify. The new rule also affects those dealing with small banks and credit unions, which typically do not fund loans from their own resources. But most banks and other direct lenders, including the few mortgage companies that function like banks, are exempt." SOUNDS MISLEADING TO MND! Every originator must follow the new compensation regs. From the Fed's guidance.."The final rule applies to loan originators, which are defined to include mortgage brokers, including mortgage broker companies that close loans in their own names in table-funded transactions, and employees of creditors that originate loans (e.g., loan officers). Thus, creditors are excluded from the definition of a loan originator when they do not use table funding, whether they are a depository institution or a non-depository mortgage company, but employees of such entities are loan originators."

S&P futures are struggling to maintain what appear to be overnight gains, but really represent a very modest stabilization just above yesterdays lows. As equities have leaned lower, benchmark interest rates have found support. The stock lever will likely be in motion at least until 10AM Existing Home Sales data prints.

Despite the inherent difference in response to changes in interest rates, it is possible to use exchange-traded risk management tools, such as CME Group Interest Rate futures and options, to manage mortgage pipeline risk. This can involve using combinations of U.S. Treasury futures and options on those futures, Interest Rate Swap futures and options on Treasury futures, or simply options on Treasury futures alone. All of these alternatives offer effective and cost-efficient mortgage pipeline hedges. To demonstrate these mortgage pipeline hedge possibilities, this paper will present a simplified analysis of pipeline risk to suggest that pipeline and warehouse are parts of a unified whole, and that fallout and prepayment risk are simply aspects of interest rate risk. Next, it will outline an analysis of pipeline holdings emphasizing the optionality of these assets. Using this foundation, the paper will demonstrate the effectiveness of three hedging strategies:

(Reuters) - Muammar Gaddafi's increasingly desperate attempts to crush a revolt against his four-decade rule have killed as many as 1,000 people and split Libya, Italy's Foreign Minister said on Wednesday. As countries with strong business ties to Africa's third largest oil producer scrambled to evacuate their citizens, and fear of pro-Gaddafi gunmen emptied the streets of the capital Tripoli, France became the first state to call for sanctions. "I would like the suspension of economic, commercial and financial relations with Libya until further notice," President Nicolas Sarkozy said. But in the latest sign of international division over how to deal with Gaddafi, the prime minister of Qatar said he did not want to isolate Libya, where several senior officials have declared their backing for protests that began about a week ago. A senior aide to Gaddafi's influential son Saif was the latest to change sides.

WASHINGTON (TheStreet) -- It's easy to define which mortgage lenders will be affected by the wind-down and replacement of Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB): All of them. It's harder to figure out which ones will be affected the most - and nearly impossible to tell whether the effect will be a good one or bad one until Congress decides how it will overhaul the entire housing-finance system. There are concerns that holders of so-called "agency" mortgage-backed securities (MBS) -- those notes issued by Fannie and Freddie -- could be left holding "orphans" if the securities are replaced by something new. On the other hand, the market for agency MBS is so huge and liquid that there's little chance investors wouldn't be able to buy or sell the securities if they needed to. Additionally, holding that high-quality mortgage debt to maturity, receiving reliable payments, isn't such a bad thing for fixed-income investors. Read the full story....

Equity futures are rebounding after anti-government riots in oil-rich Libya initiated the worst single-day sell-off since August yesterday. As stocks recover, safe-haven assets are retracing some of yesterday’s gains. Profit takers pushed benchmark interest rates slightly higher in light overnight trading last night after a "flight to safety" poured into the government bond market yesterday. The 10-year Treasury note is -6/32 at 3.483%, giving up a bit after firming 13 basis points to 3.46% on Tuesday. The US$ index is down 33 basis points to 77.44. The 2s/10s yield curve is 5bps flatter at 272bps wide. The FNCL 4.5 production MBS coupon is -2/32 at 101-11. S&P 500 futures are up 3.00 points to 1,317.50 and Dow futures are trading 27 points higher at 12,2210. Yesterday, the S&P shed 2.05% (25.6 points) and the Dow lost 1.44% (178.5 points).