Since generally better than expected economic data flashed at 8:30am, stocks have mysteriously lost steam (we call it entrenched weakness) and are now negative on the session. The S&P is currently -0.72% at 1268, below key technical support at 1270. This has led to modest gains in Treasuries, but nothing monumental as 2.90% technical resistance has drawn out profit taking. While benchmarks await a confirmed breakdown in equities with cautious optimism, mortgages are displaying an apathetic attitude. Production MBS coupons are lagging Treasuries by 4 to 6/32nds. The Fannie Mae 4.0 is currently -3/32 at 101-06, right in the middle of the intraday trading range. Without a confirmed breakout in benchmarks and a breakdown in stocks, MBS traders seem content to "wait and see" what happens next. That is evident via limited trading volume so far today in MBS-land. The stock lever is driving directionality though...so if equities continue to deflate and MBS prices catch up to Treasuries, we could be talking about reprices for the better later today. Loan pricing was mostly flat to slightly worse when lenders took down indications. We would need to see Fannie 4.0s cross over 101-14 before getting excited about the potential for broad-based reprices for the better.

(Reuters) - Federal Reserve Chairman Ben Bernanke has a recipe for helping the housing market: Modify more loans and speed up foreclosures to get rid of a glut of distressed properties clogging the system. Still, even that approach may be slow going, with persistently high unemployment making would-be borrowers cautious, and tighter credit standards for mortgages locking out the bottom third of buyers who would otherwise take the plunge. There is "evidently a lot of uncertainty about employment, about the economic recovery and that is affecting people's willingness to make the commitment to buy a house," Bernanke said at a press conference on Wednesday following the end of the Fed's two-day policy meeting. Although other parts of the U.S. economy have shown signs of recovery, the housing market remains in a slump, with March home prices at lows not seen since March 2003, years before the housing market peaked. Demand for houses is weak and data on Wednesday showed that applications for mortgages fell last week. The Obama administration and federal regulators are trying to give struggling homeowners a reprieve by permanently modifying their loans. But only a fraction of qualified homeowners are winning lower mortgage payments, housing counselors and consumer advocates say. "I would like to see just further efforts first of all to modify loans where appropriate, and where not appropriate, to speed the process of foreclosure and the disposition of the foreclosed homes in order to clear the market," Bernanke said. "Get these homes out of the pipeline and allow people to operate in a market where they are more confident that prices will be stable rather than falling," he said. Aside from using monetary policy to help boost employment, Bernanke said the Fed was also trying to help the housing market by leaning on the banks it regulates to modify loans "where appropriate."

(Reuters) - I know a guy — let’s call him Fred — who has a plan for walking away from his home and the $400,000 mortgage on it. Fred lives in Phoenix, one of those particularly hard hit real estate markets in a state that prohibits banks from coming after borrowers for additional money once a home has gone into foreclosure. The home he bought for more than $400,000 is now worth about $225,000, by his estimates. He’s saved up quite a bit of money and can keep making the payments. But he’s nearing retirement, and figures that, the way he’s going, he’ll never have home equity. So he’s buying another house; similar to the house he has now, for about half the price he paid the first time. Once that loan and settlement is done, he’s going to stop making payments on his existing house, sending it into foreclosure. “That’s going to really slam your credit score,” I said, ever the personal finance geek. “What do I care? I’m going to be 70, and I’ll already have my low-rate mortgage and my credit cards,” said Fred. So, what do you think? So-called strategic defaults make up 17 percent of defaults and may even be spreading, according to a new study by Experian. That study found that the folks who voluntarily cast off their mortgage burdens are wealthier than average, have high credit scores and are very savvy about the way they manage their money. So, what do you think? Take the Reuters poll: http://blogs.reuters.com/reuters-wealth/2011/06/23/mortgage-poll-are-strategic-defaults-ethical/

We've been referencing a lack of motivation in the markets lately. Intraday volatility has kept us on the edge of our seats, but it hasn't amounted to much progress. Since the beginning of June the benchmark 10-year note has meandered freely about a 20bp range between 2.90 and 3.10 with technically-based profit taking and new tactical ploys being the main drivers of directionality. The Fannie 4.0 has traded in a 1 point price range as mortgages played followed the leader with Treasuries. Throughout all the ups and downs, loan pricing drifted mostly sideways after setting new YTD lows on June 8th. We found those lows again yesterday, but didn't have to travel far to find 'em. It's like the market is waiting for a definitive answer to all its questions all at once. Stocks are teetering on a technical collapse and bonds are about to breakout bullishly. But no new developments can be reported. At least nothing definitive. Uncertainty seems to be the main motivation in the market at the moment (still). We're waiting for new guidance...until then short-term "strategery" and defensive biases will dominate directional flows.The one asset that has moved considerably over the past few days: OIL. With NYMEX oil prices hovering around $90/barrel, that market is at a tipping point too. Economic forecasters would certainly paint a positive picture if energy costs were to continue trending lower. We recapped overnight news headlines on the MBS Commentary blog. It is a good read: http://www.mortgagenewsdaily.com/mortgage_rates/blog/217340.aspx

After all three pieces of economic data this morning printed results that were as good or better than forecasts, MBS Prices fell and Treasury yields rose. S&P futures rose just above their best levels of yesterday's session. But the long term resistance trendline broken by 10yr yields yesterday is proving to be supportive so far this morning. That line passed through 2.935 yesterday and 2.934 today. After breaking lower yesterday morning, yields still haven't moved back above that line, briefly touching 2.934 after this morning's data and now back down to 2.915. There's an analogous technical line in the world of MBS that can be noted at 101-03 on an intermediate chart of Fannie Mae 4.0's. This line had previously acted as a ceiling of resistance on the 16th, 20th, and 22nd. After yesterday's rally broke higher, 4.0's haven't retraced back below, currently at 101-06 and hoping for 101-03 to now act as a supportive floor rather than the previously noted overhead resistance. Volume is rather low compared to recent healthy days and these trading levels connote more than an incidental amount of apathy and uncertainty. Bottom line: rate sheets may be slightly weaker this morning, but losses could be minimal if the current supportive trends hold.

Revised corporate profits after tax rose at a rate of 1.2 pct. Economists expected a fall 0.8% in the first quarter after falling 0.9% in the previous cycle. After tax Corporate Profits include inventory valuation and capital consumption adjustments. Profits from current production do not reflect tax law changes that would affect profits as reported to tax authorities.

Economists had forecast Q1 Final GDP to be rising at a rate of 1.9 pct versus a previous reading of +1.8 pct. The data printed exactly in line with those expectations. Final sales also came in dead on with the forecast of +0.6 pct. There was a slight increase noted in one of the inflation components as the GDP Deflator rose at a rate of +2.0 pct vs +1.9 pct consensus (also a +1.9 pct previous reading), But the Market-Based PCE Price Index was 0.1 pct lower than the previous reading at +3.9 pct vs 4.0 pct previously. The broadest metric, the year-over-year core PCE price index was unchanged from the previous reading at +0.9 pct. Business Inventories account for a majority of today's positive GDP figures (1.31 pct out of the 1.9 pct headline).

The Commerce Department reports that orders for durable goods in May rose 1.9 pct after declining by 2.7 pct in April. This is higher than the +1.5 pct expected by economists. However, excluding the volatile component of "transportation," the rise was 0.6 pct vs a consensus of 0.9 pct.