MBS MID-DAY: 11/16/2011

It may be useful for me to begin with a brief overview of what it means for Fannie Mae and Freddie Mac to be in conservatorship and what legal responsibilities FHFA operates under as Conservator.

The determination to place Fannie Mae and Freddie Mac, or the Enterprises as I will refer to them, in conservatorship, was made as the financial crisis of the autumn of 2008 was taking shape. At that time, the private mortgage securitization market had already vanished, house prices were declining rapidly, and the Enterprises’ eroding financial condition and inability to access capital markets threatened a collapse of the country’s housing finance system. FHFA, with financial support from and substantial consultation with the Treasury Department, placed the Enterprises into conservatorship on September 6, 2008.

(Reuters) - U.S. home-builder sentiment scaled a 1-1/2-year high in November, a survey showed on Wednesday, but conditions remain very weak to signal a turnaround in the depressed housing market.

The National Association of Home Builders/Wells Fargo Housing Market index rose three points to 20 this month, the highest level since May 2010. Economists polled by Reuters had expected the index to edge up to 18.

A reading above 50 indicates that more builders view sales conditions as good than poor and the index has not been above that level since April 2006.

"The overall measure remains quite low due to the many challenges that home building continues to face with regard to the high number of foreclosures, the difficulties of obtaining construction financing ... and the restrictive lending environment that is discouraging potential buyers," said NAHB Chairman Bob Nielsen.

All of the index's three components recorded gains in November. A measure of current sales conditions rose three points to 20, the highest level since May 2010, while a gauge of future sales expectations rose two points to 25. That was the highest reading since March.

A measure of prospective buyers rose one point to 15 -- highest since May 2010. (Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)

A bill authored by Financial Services Committee Chairman Spencer Bachus to stop future bonuses at Fannie Mae and Freddie Mac and suspend the current multi-million dollar compensation packages for the top executives was overwhelmingly approved by the Committee. The vote on the bill was 52 to 4.

Earlier this month, the Federal Housing Finance Agency announced the CEO of Fannie Mae received $5.6 million in compensation and the CEO of Freddie Mac received $5.4 million. Under the bill, the top executives of Fannie and Freddie could only have earned $218,978 this year.

H.R. 1221, the Equity in Government Compensation Act, ensures that executives and employees of Fannie Mae and Freddie Mac will receive compensation that is in line with pay practices at federal financial regulatory agencies. The bill does not make them Federal employees, but it aligns their compensation with that of Federal employees.

“The taxpayer-funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history. Adding insult to injury, the top executives of these failed companies receive multi-million dollar pay packages, all courtesy of American taxpayers who are having a difficult time making ends meet these days. These lavish compensation packages and bonuses are unfair, unreasonable and unjust to the taxpayers whose assistance is the only thing keeping Fannie and Freddie afloat,” said Chairman Bachus.

(Reuters) - U.S. consumer prices fell in October for the first time in four months as Americans paid less for new cars and gasoline, although prices outside of food and energy posted a slight increase, the Labor Department said on Wednesday.

The Consumer Price Index dropped 0.1 percent during the month. Economists had expected the index of total prices would be flat last month after rising 0.3 percent in September. Food prices rose 0.1 percent, while gasoline fell 3.1 percent. Outside food and energy, prices climbed 0.1 percent in October, the same pace registered in September.

The so-called core index rose because higher prices on non-energy services and for apparel outweighed a 0.3 percent decline in new vehicle prices. Shelter costs rose 0.2 percent, while apparel increased 0.4 percent.

In the 12 months through October, consumer prices rose 3.5 percent after rising 3.9 percent in the full year through September. Core prices rose 2.1 percent in the 12 months through October, up from 2.0 percent in September. ((For more details, see the Labor Department's CPI home page: http://www.bls.gov/cpi/)) (Reporting by Jason Lange, Editing by Andrea Ricci)

It was an uncommonly choppy overnight session as bond markets spent yet another night tuned in to all things European. US 10year yields fell near yesterday's lows on weak data and ongoing concerns about what seems like a growing laundry list of countries (added Finland last night?), then rose sharply near yesterday's highs on news of ECB buying, only to fall again on more of the "concern thing" as well as diminished ECB buying. Is it really that simple and linear? We don't know... Probably not... But was it really that choppy? Yes...

Whatever the case, 10yr yields are opening down a bp or so at 2.038 and MBS's first ticks are in line with yesterday's low (Fannie 3.5's at 101-19). There's enough by way of economic data on tap this morning for our domestic events to actually move markets! Here's the run-down:



MBA Applications at 7am (already out. Refi index down over 12% purchase index down over 2%).

Consumer Price Index - 830am. This metric of inflation at the consumer level is expected to have fallen from +0.3 pct last month to 0.0 pct this month. Excluding the more volatile food and energy components, consumer-level inflation is seen flat at +0.1 pct.

Treasury International Capital - 9am, which shows the level of foreign investment in US Treasuries

Industrial Production/Capacity Utilization - 915am. Industrial Production is expected to have risen to +0.4 pct versus last month's +0.2 pct and capacity utilization to be slightly higher from a previous reading of 77.4 pct to a current reading of 77.6 pct

NAHB Housing Market Index - 10am - Seen flat at an index value of 18.0.

Fed Speak from Rosengren