MBS MID-DAY: 2/27/2012

The National Association of Realtors today reported The Pending Home Sales Index hit it's highest level since April 2010, rising 2.0% to 97.0 in January from a downwardly revised 95.1 in December (previously 96.6). Economists surveyed by Reuters expected today's index to rise at a 1.0% pace.

Lawrence Yun, NAR chief economist, said this is a hopeful indicator going into the spring home-buying season. “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”

WASHINGTON--The U.S. Department of Housing and Urban Development (HUD) today announced that it is charging Bank of America with discriminating against homebuyers with disabilities. HUD alleges that Bank of America imposed unnecessary and burdensome requirements on borrowers who relied on disability income to qualify for their home loans and required some disabled borrowers to provide physician statements to qualify for home mortgage loans.

The Fair Housing Act makes it illegal to discriminate in the terms and conditions of a loan to an individual based on a disability, including imposing different application or qualification criteria, and makes it illegal to inquire about the nature or severity of a disability except in limited circumstances not applicable here.

"Holding homebuyers with disabilities to a higher standard just because they rely on disability payments as a source of income is against the law," said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. "Mortgage companies may verify income and have eligibility standards but they may not single out homebuyers with disabilities to delay or deny financing when they are otherwise eligible."

Full Release:

10yr Notes moved lower in yield throughout the overnight session hitting New York just under 1.94. They've held those levels in heavy volume so far this morning, though a decent amount of it is due to calendar roll trading as 10yr futures are in the process of rolling to June deliveries from March.

MBS began the day in similarly bullish fashion, but not quite as bullish as Treasuries. Whereas 10yr Notes are up about half a point and 4.6 bps lower in yield (1.93 at the moment), MBS are up a quarter of a point to 103-21 in Fannie 3.5's. 103-18 has been a well-traveled pivot point for MBS, so the fact that prices didn't move through straight away this morning isn't a major concern.

Apart from the calendar roll trading in Treasuries, there was a substantial block trade earlier this morning at 520am of 9000 5yr Futures, which helped maintain the general overnight bid. In addition, news over the weekend from the G-20 meeting that international leaders need to see a more substantial contribution from Europe to their own failsafe mechanisms before agreeing to more aid via organisations like the IMF. Rising oil prices are another factor generally contributing to the "risk-off" trade that seems to be taking root so far this morning.