MBS MID-DAY: 11/1/2011

The Federal Reserve Board on Tuesday announced that borrowers who believe they were financially harmed during the mortgage foreclosure process by four institutions in 2009 and 2010 can now request an independent review and potentially receive compensation.

Four large mortgage servicers supervised by the Board--GMAC Mortgage, HSBC Finance Corporation, SunTrust Mortgage, and EMC Mortgage Corporation--are required to conduct this program as part of their compliance with enforcement actions issued by the Board in April 2011. Under these actions, servicers are required to compensate borrowers for financial injury resulting from deficiencies in their foreclosure processes. A number of servicers supervised by the Office of the Comptroller of the Currency must also conduct the program.

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(Reuters) - Growth in U.S. construction spending slowed in September as governments cut back on building and maintaining schools and public transportation, a government report showed on Tuesday.

Total construction spending rose 0.2 percent to an annual rate of $787.21 billion, the Commerce Department said. Economists polled by Reuters had forecast a 0.3 percent increase after August construction spending rose by an upwardly revised 1.6 percent.

Spending on public construction fell 0.6 percent last month, with cuts felt across government departments from healthcare and schools to public safety and conservation. Federal spending dropped 6.8 percent, its steepest decline since December of last year. State and local outlays edged up 0.1 percent.

In the private sector, construction spending rose 0.6 percent, with residential spending up 0.9 percent and nonresidential spending up 0.3 percent.

Total construction spending was down 1.3 percent from September of last year, hurt by a 9.2 percent decline in public sector outlays. Private spending was up 3.9 percent on the year. (Reporting by Jason Lange, Editing by Andrea Ricci)

The "big" story this morning is that Greek PM Papandreou has called 2 surprise votes: one over the confidence in his governance set to occur by the end of this week and the bigger one on whether or not to proceed with the proposed bailout structure (about 3 months from now). Yes, you're reading that right... It's the Monday after the Thursday when the most significant solution to the Greek debt crisis was finally hammered out, and now Papandreou is going to put it to a vote (after the vote on how much folks like him).

This then, is the news that is sending shockwaves throughout markets this morning? Bringing the 10yr yield back to 2% and Fannie 3.5's over 102? Sort of...

Rather, this news is the spokesperson for a much broader collection of data, ideas, and fears supporting the "risk-off" trade that lay dormant while the "risk-on" camp had their day in the sun (brief day). Looking at overnight markets, stocks were well on their way to current levels before any news out of Greece. MF Global just filed the 8th largest bankruptcy in history. Italy increasingly looks like a 2nd, and more severe "Greece." And the list goes on...

Bottom line, the referendum is the big news of the day, but look at it more like one brave soldier in an army that turned the tide of battle. There are plenty of other players.
With that bit sorted out, here's a quick check of current levels

Fannie 3.5's up 11 ticks at 102-05
Ginnie 3.5's up 10 ticks at 104-03
10yr yields down 10bps at 2.014
5yr yields down 5 bps at 0.915

Expect MBS to lag TSY's into the risk-off trade but rate sheet improvements to have room to keep pace with those tepid MBS gains. What's a quarter point among friends when Greek panic resurfaces?! Parting thought: this is like a new version of Groundhog's day and Greece not only saw its shadow but got freaked right the heck out by it. 3 more months of uncertainty.