MBS MID-DAY: 12/21/2011

The quarterly OCC Mortgage Metrics Report showed delinquencies remained elevated but stable during the third quarter of 2011 but have declined from a year earlier. However, the number of new foreclosures increased by 21.1 percent during the quarter as servicers lifted voluntary moratoria implemented in late 2010 and exhausted alternatives to foreclosure for the large inventory of seriously delinquent mortgages working through the loss mitigation process. The increase in new foreclosures and the increase in average time required to complete foreclosures sales has resulted in the number of foreclosures in process increasing to 4.1 percent of the overall portfolio, or 1,327,077 loans, at the end of the third quarter of 2011.

At the end of the third quarter of 2011, 88 percent of the 32.4 million loans in the portfolio were current and performing at the end of the third quarter, almost unchanged from the previous quarter. The percentages of mortgages that were 30-to-59 days delinquent and mortgages that were seriously delinquent (loans 60 or more days delinquent or delinquent mortgages to bankrupt borrowers) did not change from the previous quarter. However, both categories of delinquencies have declined from a year earlier.

RTRS - US NOV EXISTING HOME SALES 4.420 MLN UNIT ANNUAL RATE (CONS 5.05 MLN) VS OCT 4.250 MLN (PREV 4.97 MLN)-NAR

RTRS - US NOV EXISTING HOME SALES +4.0 PCT (CONS +1.9 PCT) VS OCT +1.4 PCT (PREV +1.4 PCT)-NAR

RTRS - US NOV UNSOLD EXISTING HOMES ON MARKET 2.58 MLN, DOWN FROM 2.74 MLN IN OCT (PREV 3.330 MLN)

RTRS - US NOV NATIONAL MEDIAN PRICE FOR EXISTING HOMES $164,200, -3.5 PCT FROM NOV 2010-NAR

RTRS - US NAR SAYS AVERAGE HOME SALES BETWEEN 2007-2010 4.420 MLN, REVISED DOWN 14.3 PCT FROM PREVIOUS ESTIMATE OF 5.157 MLN

RTRS - US NAR SAYS 29 PCT OF U.S. NOV EXISTING HOME SALES WERE DISTRESSED SALES VERSUS 28 PCT IN OCT

RTRS - US NOV INVENTORY OF HOMES FOR SALE 7.0 MONTHS' WORTH, SMALLEST SUPPLY SINCE MATCHING 7.0 MOS IN FEB 2007

RTRS - NAR SAYS HOME SALES TROUGH IN JULY 2010 AT 3.30 MLN, REVISED FROM PREVIOUS ESTIMATE OF 3.86 MLN

The ECB's LTRO (Long Term Refinancing Operation) dominated the overnight session. But as it turns out, it's effects on domestic yields were mostly seen over the course of yesterday's choppy trading as the 2 day chart leaves us with the distinct impression that the "risk-off" trade gradually built-in a concession for the release of the official tally from the LTRO.

In other words, 10yr yields rose sharply yesterday, and we think it has more to do with front-running the LTRO than anything else. Things went dead sideways overnight until whisper numbers started circulating. That took yields higher at first, in choppy, low-volume trading. But with the same sort of surprise heard in Boris Karloff's voice when he proudly announced the Grinch's heart grew three sizes, long-end yields bucked the trend and actually turned lower. At risk of forcing the continuation of the metaphor, one might even say 10yr yields are charging down Mount Crumpet this morning, now bringing high 1.8's to all the little Who villagers.

This "LOTRO failing to reverse the early December Risk-Off rally" isn't a done deal yet. Volume remains low enough that further volatility is possible, but for now, it at least seems that yesterdays losses have been arrested. 10's have dipped into 1.8's on a few occasions in recent minutes and currently stand at 1.901. MBS opened flat and are currently up 2 ticks at 102-12 in Fannie 3.5's. S&P futures are down about 15 points from LTRO announcement time.

(Reuters) - Banks took a huge 489 billion euros at the European Central Bank's first ever offering of three-year funding on Wednesday, raising hope a credit crunch can be avoided and that the money may be used to buy Italian and Spanish bonds.

A total of 523 banks borrowed money at the tender with demand way above the 310 billion euros expected by traders polled by Reuters in the run-up to the operation.

The banks' lunge for funding pushed the euro to a one-week high versus the dollar and sparked a rally in stocks.

The three-year loans are the ECB's latest bold attempt to ease the euro zone's troubles. It is the most the bank has ever pumped into the financial system, topping the near 450 billion it injected with its first one-year loans back in 2009.

Its hope is that the ultra-cheap and ultra-long funding will have a range of beneficial effects, including bolstering trust in banks, easing the threat of a credit crunch and tempting banks to buy Italian and Spanish bonds, thereby calming markets and easing the currency bloc's sovereign debt crisis.

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