MBS MID-DAY: Selling Stalls

(Reuters)-US regulators will give banks more time to comply with a crackdown on their mortgage servicing practices. On Monday the Office of the Comptroller of the Currency said it was extending by 30 days the time the banks have to file plans for how they will meet the requirements laid out in an agreement entered into on April 13 with the agency. The banks originally had 60 days to comply with the order. The OCC said the Justice Department is requesting the delay, which would provide more time for it and state governments to advance their own negotiations with the banks to settle accusations of foreclosure shortcuts. A group of 50 state attorneys general and federal agencies have been probing bank mortgage practices that came to light last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day. The OCC, the Federal Reserve and the Office of Thrift Supervision announced on April 13 that 14 large housing lenders had agreed to overhaul their mortgage operations and compensate borrowers who were wrongly foreclosed upon. What fines the banks may have to pay has yet to be determined. The state AGs and the Justice Department are in talks with Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Financial about a separate settlement. Last month the banks had proposed a settlement figure of $5 billion, which was far below the $20 billion range the states and their partner federal agencies had discussed. Earlier this year the banking regulators and the states had hoped to announce a settlement with the banks at the same time but in April the banking agencies decided to move first. At the time Acting Comptroller of the Currency John Walsh said that the compliance plans banks would have to submit under their agreement with the banking agencies could include elements of whatever settlement the lenders struck with the states and the Justice Department. (Reporting by Dave Clarke, Editing by Dave Zimmerman)

Although MBS made it through the first technical resistance level today (100-20+ in Fannie Mae 4.0's), the next challenge faced at 100-24 proved to be elusive for now. MBS briefly tested 100-25, thus entering into Friday's range for a moment before falling back down to 100-20+ now hopefully acting as support. 10yr yields also failed to push meaningfully under 2.98, heading back to the 2.99's in the hopes of finding a supportive ceiling before getting into the 3's. Simply put, the day began with weakness in bond markets, shifted toward strength, and is now somewhere in between, still undecided as far as suggesting what the rest of the day might hold.

The morning's movements in both MBS and Treasuries (stocks too, for that matter) suggest some important technical levels to watch for the rest of the day. In each market, there's an initial point of resistance posed by the best levels from earlier this morning. Both MBS and TSYs are in the process of testing those now with Fannie Mae 30yr Fixed MBS having broken through previous highs of 100-20+ in 4.0 coupons and 10yr Treasury yields having broken lower past 2.99. Both levels had offered resistance so far this morning. The next goal will be to break and hold above 100-24 for MBS and to break lower than 2.975 in 10yr Treasury yields. S&P's have been quick to shy away from Friday's best levels and face resistance near 1280. They're currently at 1275 with room to trade down to 1270 without breaking the worst levels of their 2 day range. You should be able to easily notice Friday's range in 4.0 MBS as well as what was the range this morning, with prices now progressing toward the higher range. If that occurs, any lenders already out with pricing may consider reprices for the better. The longer a potential breakout is held or the higher above 100-24 it goes, the better the chances of reprices for the better.

Several of last week's Fed speakers offered noticeably more bearish outlooks versus speeches in May. Add Richmond Fed's Lacker, speaking today on Manufacturing in the US South, to that list. On May 10th, Lacker said he believed Q1 GDP weakness to be "transitory" and that the latest employment data sent "a really solid signal about the job market." But what a difference a month makes. Using the increasingly popular word among Fed Officials, Lacker said The inability so far of the expansion to gain more traction has been frustrating," further noting in stark contrast to his thoughts in May that "The recovery that began in the second half of 2009 has been patchy and has yet to produce a sustained period of above-trend growth." He also noted that strength seen in consumer spending at the end of 2010 had abated during the first half of 2011. Although Lacker is not currently an FOMC voter, he will be in 2012 (and is also an alternate voter currently).

(Reuters) - A number of Wall Street's biggest banks are preparing to lower their use of U.S. Treasuries in August, the Financial Times reported on Sunday. The decision comes as a precaution against any turbulence that could follow if conflicting Republicans and Democrats fail to increase soon the U.S. debt ceiling, the newspaper said, citing a senior bank chief. The report did not provide names of specific banks that would be cutting their use of U.S. Treasuries. One alternative strategy that bank executives disclosed to the FT is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system's reliance on Treasuries. Investors worldwide own large amounts of the debt that has been sold by the U.S. government as part of their portfolios. President Barack Obama and Republican lawmakers are engaged in a high-stakes standoff over raising the $14.3 trillion U.S. borrowing limit, which the administration says must happen before August 2 to prevent the United States from defaulting on its obligations. Meanwhile, Wall Street has told the Treasury that such a scenario could create huge problems for financial markets.

Investors this week will be given key data on second-quarter industrial production, retail sales, inflation, the housing market, consumer sentiment, and manufacturing. Loan pricing looks to deteriorate as the week gets underway. "Rate sheet influential" MBS prices are 5/32 lower with the Fannie Mae 4.0 coupon bid at 100-20. This will result in 10-15bp rebate reductions. There's a feeling in the air that Treasury prices can't rise much higher and that investors are more willing to stuff cash into equities again after six straight weeks of losses. The Financial Times is even leading with a story on how bigger banks are "preparing to cut their use of US Treasuries in August as a precaution against any turbulence that could follow if warring Republicans and Democrats fail to increase soon the US debt ceiling." The stock lever is already negatively impacting bond prices. S&P futures are up 5.75 points (0.45%) at 1275 and the benchmark 10-year Treasury note is -8/32 at 101-02 yielding 3.000%, 3bps higher from Friday's close versus an average yield of 3.07% over the past 12 months and 4.09% over the past decade. Its low last week was just under the 2.92% mark.The S&P has shed nearly 7% since late-April, including 2.2% last week, but the losses were more like "a slow bleed than uncontrolled hemorrhage," said economist Robert Kavcic at BMO Capital Markets. FULL ECON CALENDAR: http://www.mortgagenewsdaily.com/mortgage_rates/blog/215496.aspx