MBS MID-DAY: Early Signs of Reprices

May 10 (Reuters) - The White House took a dim view on Tuesday of Republicans' demand that President Barack Obama accept more than $2 trillion in spending cuts in exchange for their agreement to raise the $14.3 trillion U.S. debt limit. House of Representatives Speaker John Boehner, the top Republican in the U.S. Congress, on Monday laid down a tough new yardstick in talks over the U.S. debt, saying spending cuts must exceed any boost to the U.S. borrowing limit. A senior White House official told Reuters that Obama agrees debt reduction is an urgent priority and the president has offered a "balanced, fair plan" for $4 trillion in deficit reduction. Obama believes bipartisan negotiations led by Vice President Joe Biden, which resume on Tuesday, can lead to an agreement on further substantial reduction, the official said. "But it is simply irresponsible to declare that you will tank the U.S. economy if you don't get what you want," the official said. Treasury Secretary Timothy Geithner has warned of economic catastrophe if the federal government's borrowing authority is not increased and has told Congress that he will be able to stave off default until Aug. 2 by drawing on other accounts once the debt limit is reached. An increase of $2 trillion will be needed to cover the country's borrowing needs through the November 2012 elections, Treasury officials have told lawmakers, but Congress could opt for a smaller increase if more time is needed to hash out a deal. Obama wants to raise taxes on wealthier Americans and shield popular entitlement programs like the Social Security and Medicare programs for the elderly. (Reporting by Steve Holland; Editing by Vicki Allen)

As we’ve commented in the past, it makes a lot of sense for a mortgage banker and/or originator to partner with a commercial bank. The benefits are numerous: strong capital, liquidity, large warehouse facilities, investor approvals, licensing, etc, etc. Although it makes a lot of sense, it's hard for mortgage bankers and brokers to locate a suitable partner and gain regulatory approval. Furthermore, working at a large commercial bank can be challenging because they're not very flexible –loans either fit in the box or they don’t – the environment must be loan officer centric. We put our heads together and came up with what we feel is the beginnings of an "Originator's Dream Job Wish List". Check it out and let us know how you feel in the comments section of this post: http://www.mortgagenewsdaily.com/garrett_watts/156271.aspx

(FORBES) - Cases of residential mortgage fraud reported by institutions in the home financing industry fell in 2010 for the first time in five years, but that's because fewer new home loans are being made, and the true rate probably rose, according to a new study. The LexisNexis Mortgage Asset Research Institute said Monday that the number of reported home loan fraud cases fell 41 percent between 2009 and 2010, A study authored by the institute, which provides mortgage fraud prevention services, said this was the first drop since the institute began tracking the reports five years ago and brings the number of cases down to housing-boom era levels. The institute based its findings on mortgage fraud data submitted by mortgage brokers, financial institutions, mortgage insurers and government-run mortgage giants Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ), among others. The reports represent verified instances of mortgage fraud involving a licensed broker, appraiser, title agent or other professional. The fraud could include a borrower falsifying information on loan documents but only if the borrower was conspiring with a mortgage industry professional. he decline in reported mortgage fraud cases follows a drop in home loans, or mortgage originations, as banks tightened lending standards during the housing downturn. In addition, there are fewer resources available to investigate and report incidents of fraud, the report said.

NEW YORK, May 10 (Reuters) - U.S. Treasury debt prices were little changed on Tuesday as some easing of inflation worries and concerns over European debt problems offset selling pressure going into the auction of three-year Treasury notes. Investors typically try to cheapen securities heading into such sales. The auction of three-year notes kicks off the $72 billion of refunding sales this week. Losses were stemmed however as worries over European debt maintained some safety buying, while the Federal Reserve was set to purchase $6 billion to $8 billion of notes in the five-year area. Bonds also found support from lowered expectations of inflation following a sharp sell-off in commodities, including crude oil, late last week. "Right now it is a mixed bag -- inflation expectations are falling and a lot of people did not expect this, and they are also looking at the embedded risks in Europe," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts. Worries over the outcome of a debt crisis in Greece underpinned the safe-haven allure of U.S. debt. Greece denied a report of a new bailout package for the country with international lenders on Tuesday. The report follows on the heels of rating cut by Standard & Poor's on Greece's credit, knocking it further into junk territory on Monday. "Most of the focus (in Europe) continues to be the Greek sovereign crisis as well as others like Spain and Ireland. In fact this should be a good support mechanism for the market place once we get through supply," said Thomas di Galoma, managing director of U.S. government Treasury and agency sales at Oppenheimer & Co in New York.

(Reuters) - Studies by regional Federal Reserve banks show job scarcity is a major hindrance to the recovery of the depressed U.S. housing market, a top Fed official said on Tuesday. Fed Governor Elizabeth Duke said regional Fed banks have begun collecting data from surveys in a more systematic way. Officials at the central bank hope the results will play a greater role in making decisions about monetary policy, she said. "The lack of jobs was the dominant theme in the first year of data collection, with the majority of respondents identifying unemployment as the primary cause of new distress in the housing sector," Duke said. The Fed governor cited one participant in a San Francisco Fed survey, who said prolonged unemployment and underemployment are causing a surge in the number of low-and moderate-income individuals and communities. "Unemployment is now the driving force behind most of the other crises we are facing." the respondent told the Fed. However, Duke said conditions for small businesses, who make up the bulk of U.S. hiring, are improving. "The combination of a variety of recent survey results paints a picture of increasing optimism about future sales and business conditions and a corresponding easing of credit availability for small businesses," Duke said in a speech in St. Louis on community development. A copy of her speech was made available in Washington. U.S. companies created jobs at the fastest pace in five years in April, pointing to underlying strength in the economy, although the jobless rate -- which is derived from a separate survey rose -- to 9.0 percent on a modest rise in the size of the labor force. ( Reporting by Mark Felsenthal, Editing by W Simon )

(Reuters) - U.S. wholesale inventories climbed in March as businesses saw a sharp increase in sales, suggesting parts of the economy are growing firmly, according to Commerce Department data released on Tuesday. Inventories rose 1.1 percent in the last month of the first quarter, slightly above economists' forecasts. But sales jumped 2.9 percent, more than double the median projection in a Reuters poll. At $392.01 billion, sales were at their highest since June 2008, just as the U.S. credit crisis was morphing into a broader phenomenon that pushed the world into recession. The sales to inventory ratio, which offers some hints of the state of demand, fell to 1.13, matching June 2008 lows. The U.S. economy expanded just 1.8 percent in the first quarter, but is expected to grow around 3 percent for 2011 as a whole. (Reporting by Pedro Nicolaci da Costa; Editing by James Dalgleish)

May 10 (Reuters) - The share of investors who expect lower U.S. Treasury prices grew to their highest level in a year despite a month-long rally in the bond market, a survey released on Tuesday showed. The share of investors who said on Monday they were short, or holding fewer Treasuries versus their portfolio benchmarks, rose to 27 percent, up from 21 percent the previous week, J.P. Morgan Securities said. Investors often pare their Treasuries holding in advance of longer-dated supply. The U.S. Treasury is scheduled to sell $72 billion of fresh debt as a part of its May quarterly refunding this week, which is set to offer debt ranging in maturity from three years to 30 years. Supply pressure has been offset by a safe-haven bid for U.S. government debt on intensified concerns over the rising bailout to address Greece's debt problem. The benchmark 10-year Treasury yield has fallen to its lowest levels in five months. It was last 3.17 percent, up from 3.16 percent on Monday. Other data show other players are expecting Treasuries prices might be ready to a pullback. Speculative traders raised their short bets on 10-year T-note futures by 30,029 contracts last Tuesday to 274,543 as May 3, according to data from the Commodity Futures Trading Commission released on Friday. According to the latest J.P. Morgan survey, the share of investors who were "long," or owning more Treasuries than their portfolio benchmarks, fell to 8 percent from 10 percent last week. The gap between investors who said they were short Treasuries and those who said they were long grew to 19 percent, the most since May 3, 2010, J.P. Morgan said.

With actual economic data to digest this morning, not to mention the 3yr note auction this afternoon, TSYs and MBS were slightly weaker overnight, Things have moderated a bit in the domestic session and after an Import Prices report that hasn't done much to move markets, 10yr notes are 1 bp higher on the day at 3.168. FNCL 4.5's are nowactually 1 tick higher on the day at 103-18. Next data hits at 10am with Wholesale Inventories, probably not too much of a market mover.

RTRS - U.S. APRIL IMPORT PRICES +2.2 PCT (CONS. +1.8 PCT) VS MARCH +2.6 PCT (PREV +2.7 PCT) RTRS -U.S. APRIL EXPORT PRICES +1.1 PCT (CONSENSUS +0.9 PCT) VS MARCH +1.5 PCT (PREV +1.5 PCT) RTRS -U.S. APRIL PETROLEUM IMPORT PRICES +7.2 PCT VS MARCH +9.8 PCT RTRS -U.S. APRIL YEAR-OVER-YEAR IMPORT PRICES +11.1 PCT, EXPORT PRICES +9.6 PCT RTRS -U.S. APRIL NON-PETROLEUM IMPORT PRICES +0.6 PCT, YEAR-OVER-YEAR +4.3 PCT

(Reuters) - PIMCO's Bill Gross, the manager of the world's largest bond fund, raised his bet against U.S. government-related debt in April to 4 percent from 3 percent, according to the company's website on Monday. The increase, albeit small, follows Gross' move to ratchet up his bearishness in March by taking his initial short position in U.S. government-related debt, which includes Treasuries, TIPS, agencies, interest rate swaps, Treasury futures and options and FDIC-guaranteed corporate securities. The $240 billion Total Return fund also raised its cash position to 37 percent in April from 31 percent in March, added Pacific Investment Management Co, which oversees $1.2 trillion in assets. The Total Return fund took down its mortgage exposure to 24 percent in April from 28 percent the previous month. The fund also decreased its allocation in investment-grade credit to 17 percent in April from 18 percent in March and junk bonds to 5 percent in April from 6 percent the previous month. For their part, emerging markets exposure increased to 11 percent of the Total Return portfolio, up from 10 percent in March, and municipal bonds unchanged at 4 percent month-over-month. Last Friday, Gross told Reuters that the only way he would purchase Treasuries again is if the United States heads into another recession. Since the news that Gross had turned more bearish on government debt, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.

(Reuters) - Bank of America Corp plans to reduce its $850 billion portfolio of troubled home loans by about half over the next three years, the bank's new mortgage unit head told the Financial Times. The bank looks to do this as it seeks to quickly resolve problems related to the housing crisis and the purchase of Countrywide Financial, the paper said. Last month, Bank of America posted an unexpectedly sharp drop in first-quarter profit as higher expenses from delayed home foreclosures weighed on its mortgage business. BofA's Terry Laughlin was asked to tackle the growing number of bad loans that impact the bank's overall performance, the Financial Times reported. "We are isolating the problems and quickly identifying the resources we need to fix them," Laughlin told the Financial Times. Bank of America said in March it did not expect its mortgage business to return to normal earnings until 2014 or later, while most of its other businesses could recover by 2013. Laughlin wants to streamline the modification process, under which borrowers are typically offered lower monthly payments for a period, to better handle the high number of delinquencies, the daily said.

(NFIB) - The month of April marked a second consecutive month of decline in small-business optimism; NFIB’s index dropped to 91.2 in April – a much smaller dip than the previous month, but still another sign of the nation’s anemic economic recovery. While reports of net jobs created by small firms stayed positive, the numbers posted did not match the surprising gains cited in last week’s Labor Department report. This suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street—the ones traditionally responsible for leading the country out of recessions, are still struggling to hire. “While it’s too early to say that a trend has emerged, a second consecutive month of decline in small-business optimism does very little to encourage further confidence in a strong economic recovery,” said NFIB Chief Economist Bill Dunkelberg. “Owners simply find no reason to be optimistic about the future and therefore they find no reason to pick up the pace of spending and hiring. It’s difficult to know exactly why the outlook for small firms is in decline; but it’s a safe bet that political and economic uncertainty—about the deficit, the threat of inflation, rising energy and health care costs—are at top of the mind for most small-business owners. Who is going to stay positive in this turbulent political environment?” April’s report did not differ significantly from the previous month’s. But despite the generally subdued April reading, two notable changes emerged, although neither are index indicators. First, small businesses posted a substantial increase in the number of owners who reported raising selling prices. And second, the net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months improved 7 points to a net negative 5%, the best reading since December 2007.

Benchmark interest rates traveled higher early in in the overnight session after positive data from China set global equity markets on an upward path. "Global market activity is more upbeat this morning despite all of the ongoing angst in Europe," said economists at BMO Capital Markets, noting several indexes in Europe are up 1.25% or more. "Strong data out of China are likely fueling the larger appetite for risk." The Chinese trade surplus widened to $11.4 billion in March, easily beating forecasts for an increase to $3.3 billion. The 10-year Treasury note is however recovering from modest overnight weakness after it strengthened to 3.14% on Monday, its lowest yield since late December. 10s are currently -1/32 at 103-28 yielding 3.160%. The 2s/10s curve is 1bp flatter at 260bps wide and the FNCL 4.5 MBS coupon is +1/32 at 103-19. Treasuries will be closely watched as the market absorbs a $72 billion batch of new debt supply, starting with $32 billion 3-yr notes today at 1pm. S&P 500 futures are 5.25 points higher at 1,348.00 and Dow futures are up 46 points at 12,674. The two indexes closed 6.1 points and 46 points higher on Monday, respectively. Oil prices are 0.52% lower but remain in triple-digits, at $102.02, after appreciable gains on Monday. Gold prices are up almost 1% to $1,517.40. Don't forget, it's roll day for Fannie and Freddie 30yr MBS coupons.