MBS MID-DAY: 9/21/2011

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 7.7 percent to a seasonally adjusted annual rate of 5.03 million in August from an upwardly revised 4.67 million in July, and are 18.6 percent higher than the 4.24 million unit level in August 2010.

Lawrence Yun, NAR chief economist, said there are some positive market fundamentals. “Some of the improvement in August may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations,” he said. “Investors were more active in absorbing foreclosed properties. In additional to bargain hunting, some investors are in the market to hedge against higher inflation.”

Not surprisingly, we're waking up to one of the quietest overnight sessions in recent memory as all seems to have fallen eerily silent as today's 2:15pm FOMC announcement approaches.

-Fannie 3.5's are down 4 ticks to 101-17
- Fannie 4.0's are down 2 ticks to 104-13
- 10yr yields are unchanged at 1.94

Existing Homes Sales is the only data on tap and that will hit at 10am. Not normally that important of a report, and that's doubly true on Fed day.

As far as what we might see from the Fed, the consensus is that it will be some iteration of an "Operation Twist" whereby the Fed would buy more longer-dated Treasuries either by simply reinvesting the coupon payments and payoffs they receive (passive twist) or by actually selling their shorter paper outright to buy the long stuff (active twist). The latter would be a bit more bullish for our world, but we do wonder to what extent it's already priced in to the market and what effect the stock market reaction will have.

Loan pricing should be flat to weaker, but only slightly. Among lenders who didn't reprice for the better yesterday, there's a better chance that you'll see flat pricing this morning and perhaps even slightly improved, though we'd expect things to be conservative until the Fed's cards are down.