MBS MID-DAY: 11/3/2011

Q3 2011 National Housing Survey Provides Findings on Attitudes of Consumers Who Know Defaulters

Fannie Mae's third quarter National Housing Survey provides in-depth findings on attitudes of consumers who know of people in their area or neighborhood who have defaulted on their mortgage. This latest survey shows that those exposed to default have similar attitudes about buying a home as those who do not know people that have defaulted. However, the survey also finds greater pessimism about the economy and personal finances among consumers who know defaulters.

News Release The Power Point Presentation

"Chairman Garrett, Ranking Member Waters and members of the Subcommittee, thank you for inviting me this morning to discuss Chairman Garrett’s recent legislative proposal (“Discussion Draft”) to reform the secondary mortgage market. I am pleased that the Subcommittee is beginning the serious work of considering housing finance reform options, which will lead to the ultimate resolution of Fannie Mae and Freddie Mac (the Enterprises).

This morning I will briefly review the work of the Federal Housing Finance Agency (FHFA) since I last appeared before the Subcommittee in May and then I will address housing finance reform issues, including the Chairman’s proposal..."

Read the Full Statement

(Reuters) - New orders for U.S. factory goods unexpectedly rose in September and capital spending plans by businesses surged, according to a government report on Thursday that showed underlying strength in manufacturing.

The Commerce Department said orders for manufactured goods increased 0.3 percent after a revised 0.1 percent gain in August, previously reported as a 0.2 percent fall. Economists had expected orders to slip 0.1 percent.

Orders excluding transportation rose 1.3 percent in September after edging down 0.1 percent the prior month.

Orders for non-defense capital goods excluding aircraft -- seen as a measure of business confidence and spending plans - jumped 2.9 percent in September after advancing 0.9 percent the prior month. The increase in this category was the largest in six months.

(Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)

(Reuters) - The pace of growth in the vast U.S. services sector slowed modestly in October to its lowest level in three months as new orders declined, according to an industry report released on Thursday.

The Institute for Supply Management said its services index eased to 52.9 last month from 53.0 the month before. The reading fell shy of economists' forecasts for 53.5, according to a Reuters survey, and was the lowest level since July.

A reading above 50 indicates expansion in the sector. A gauge of new orders fell to 52.4 from 56.5, but the employment component improved to its highest level since June at 53.3 from 48.7.

(Reporting by Leah Schnurr; Editing by James Dalgleish; )

Confirming the notion that EU headlines are the main driver of domestic markets right now, the two biggest market movers this morning have been the announcement regarding Papandreou's resignation (which is still a bit up in the air it seems) and to a greater extent, a surprise rate cut by the European Central Bank (ECB). The resignation story is somewhat diluted as it was partly expected and it's veracity seemed to slowly filter in throughout the morning. The ECB cut however, clearly coincided with the biggest volume surge of the morning, making our 830am domestic economic data look downright silly by comparison.

10yr yields are fighting to hold onto support around 2.06-2.07 and Fannie 3.5's have thus far seen similar support in the high 101-20's, currently 101-27, which is 13 ticks lower than yesterday's 5pm levels.

There's a bit more domestic econ data ahead with Factory Orders and ISM Non-Manu at 10am, but again, it's all about Europe. Trends this morning are troublesome for bond markets so far. Next major support for 10yr yields is around 2.11. Fannie 3.5's have technically supportive rungs on the ladder around current levels, then again in the low 101-20s, then again at 101-13 (if things get really ugly). Rate sheets should be markedly worse and possibly delayed if negative momentum persists.

While lauding the bill’s intent, NAFCU on Wednesday told lawmakers it cannot support the Private Mortgage Market Investment Act since it includes no explicit government guarantee for mortgage-backed securities.

The proposal, authored by Rep. Scott Garrett, R-N.J., will be addressed in a hearing today of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, which Garrett chairs. The measure would require the Federal Housing Finance Agency to create several sets of underwriting standards for mortgages to allow investors a clear choice of risk level when they purchase MBS...

(Reuters) - The European Central Bank cut its main interest rate by 25 basis points to 1.25 percent on Thursday as the euro zone's worsening debt crisis outweighed the concern over persistently high inflation.

The ECB also reduced the interest rate on its deposit facility to 0.5 percent and the rate on the marginal lending facility to 2.0 percent.

ECB President Mario Draghi will explain the Governing Council's decision at a 1330 GMT news conference -- his first at a monetary policy meeting after taking over the reins on Tuesday from Jean-Claude Trichet.

The cut marked a change in policy course after the ECB increased its rates in July and April, when it became the first major central bank to hike after the intensification of the financial crisis. Markets are now looking for hints whether the ECB is preparing to cut rates again next month.

Attention will also focus on other changes in the central bank's policy after the change of guard, especially whether its government bond programme will be boosted. (Reporting by Sakari Suoninen)

Freddie Mac (OTC: FMCC) today reported a net loss of $4.4 billion for the quarter ended September 30, 2011, compared to a net loss of $2.1 billion for the quarter ended June 30, 2011.

Read the News Release

(Reuters) - U.S. nonfarm productivity increased during the third quarter while growth in wages and benefits slowed sharply, showing that some inflation pressures were easing even as the economy picked up pace.

Productivity rose at a 3.1 percent annual rate, the Labor Department said on Thursday, the biggest increase since the first quarter of 2010. Productivity, which measures hourly output per worker, fell during the first two quarters of this year.

Economists had expected the government's report would show productivity increased at a 2.8 percent rate. The rebound in productivity was in a line with the return to stronger economic growth during the third quarter following a sharp slowdown early in the year.

The productivity report showed unit labor costs fell 2.4 percent in the third quarter, a much bigger decline than the 0.8 percent rate forecast by analysts.

Compensation per hour rose 0.6 percent during the period, down from growth of 2.7 percent during the previous quarter and 5.6 percent in the first three months of the year. (Reporting by Jason Lange; Editing by Andrea Ricci)

(Reuters) - New U.S. claims for unemployment benefits fell below 400,000 last week for the first time in five weeks and a trend reading also edged lower, suggesting a modest improvement in the still-moribund labor market.

Initial claims for state unemployment benefits dropped by 9,000 in the week ending Oct. 29 to a seasonally adjusted 397,000, the Labor Department said on Thursday. The government raised slightly its estimate for claims filed during the prior week to 406,000.

Economists polled by Reuters had forecast claims edging down to 400,000 from the previously reported 402,000.

The level of weekly claims remains well above pre-recession levels and has dipped below 400,000 only on brief occasions this year,

suggesting no fast turnaround is imminent for the jobs market.

The four-week moving average of claims, considered a better measure of labor market trends, fell 2,000 to 404,500.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 15,000 to 3.683 million in the week ended Oct. 22.

Economists had forecast so-called continuing claims at 3.69 million. A total of 6.782 million people were claiming unemployment benefits in the week ended Oct. 15, up from 6.679 million during the prior week. (Reporting by Jason Lange; Editing by Andrea Ricci)