MBS RECAP: 1/4/2012

Although it's not unheard of for a lender to show up late to a "reprice-for-the-worse" party after MBS prices are noticeably bouncing back, the risks of such things do appear to be fading as Fannie 3.5's were effectively about to hold onto support at 102-22, with the exception of the 15 minute period leading up to 2pm. But that break lower now strikes the eye as a "failed breakout attempt,." Not only did prices move back over 102-22, but they fell again and bounced there as if to confirm that the level was a pivot point of at-least moderate importance today. We're not sure the recovery looks quite strong enough for any corrective reprices-for-the-better, but at least the previously-alerted negative risks look fairly unwound.

Below is the media advisory on the NY Fed's website and the link below contains the results of the survey itself.

NEW YORK – The Federal Reserve Bank of New York has posted aggregated results from its December 2011 survey of primary dealers. The results are now available on the Primary Dealers section of the Bank’s website as part of the New York Fed’s ongoing efforts to increase transparency.

The New York Fed announced last month that it would post primary dealer survey questions on the same day they are sent to the dealers and that aggregated results would follow. Going forward, these results will be posted on a regular basis on the Bank’s website one day after minutes of FOMC meetings are made public.

About the Primary Dealer Surveys:
In advance of each FOMC meeting, a survey prepared by the New York Fed’s Markets Group is sent to the Bank’s primary dealers. The survey questions are based only on topics widely discussed in public, including in FOMC statements, meeting minutes and remarks by FOMC members. FOMC members are not consulted in the formulation of survey questions.

• RTRS - FED WHITE PAPER ON HOUSING SAYS CONTINUED WEAKNESS IN HOUSING MARKET POSES SIGNIFICANT RISK TO MORE VIGOROUS ECONOMIC RECOVERY
• RTRS - FED, IN LETTER TO LAWMAKERS, SAYS THERE IS SCOPE FOR ACTION TO EASE PRESSURES ON HOUSING MARKETS
• RTRS - FED URGES MEASURES TO HALT RISING INVENTORY OF UNSOLD HOMES, IMPROVE ACCESS TO MORTGAGE CREDIT, LIMIT FORECLOSURES
• RTRS - SOME ACTIONS THAT CAUSE GREATER LOSSES TO GOVERNMENT SPONSORED MORTGAGE AGENCIES IN NEAR TERM COULD BENEFIT TAXPAYERS IN LONG RUN BY SPURRING MORE VIGOROUS RECOVERY-FED
• RTRS - ALLOWING GSES TO REFINANCE NON-GSE MORTGAGES UNDER GOVERNMENT REFINANCE PROGRAM COULD ALLOW 1 MILLION TO 2-1/2 MILLION BORROWERS TO REFINANCE - FED
• RTRS - WHILE GSES WOULD TAKE ON ADDITIONAL CREDIT RISK, BENEFITS FROM EXPANDED PROGRAM MIGHT OFFSET SOME OF COSTS-FED
• RTRS - FED SAYS MIGHT BE APPROPRIATE TO TURN FORECLOSED HOMES INTO RENTALS TO EASE DOWNWARD PRICE PRESSURE, MEET RENTAL DEMAND
• RTRS - A GOVERNMENT-RUN REO-TO-RENTAL PROGRAM HAS THE POTENTIAL TO HELP THE HOUSING MARKET – FED

Update on the previously issued alert (1:10pm)

Fannie 3.5's broke the pivot point at 102-22. This increases risks of reprices for the worse. 10yr yields are at 2.0069, their highs of the day.

Things are getting a bit dicier than we'd like as far as feeling safe from the possibility of negative reprices. In general, MBS continue to weather the 2 day storm of Treasury weakness exceedingly well, and even now are only 1 tick lower on the day at 102-26 in Fannie 3.5's. But having poked and prodded at the lows of the day in recent moments, we can't rule out the possibility that a few of the characteristically early-to-act lenders might be considering repricing for the worse.

If we do see a reprice or two here, it's still too early to assume it would be widespread, and we'd watch the 102-22 level as the next milepost for more pronounced risk. The counterpoint to this risk is that benchmark 10's are traveling in a sideways sort of pattern near 2% and a bounce lower would probably be much-appreciate by MBS (whereas a break higher might hearken that 102-22 milestone sooner than later).