With so many unprecedented and hefty considerations, markets might enjoy tomorrow's complete absence of scheduled economic data as some sort of chance to seek its own equilibrium, unencumbered by relentlessly churning ticker tape. Oh, but who are we kidding... That's probably too much to hope for as chances are still good that more than a few headlines will crop up between the reaction to the EU summit, the domestic debt-ceiling debate, and whatever else might enjoy a bit of the spotlight. Regardless of whether or not unexpected headlines move markets tomorrow, the direction of the movement could be fairly informative tomorrow. Right now we're dealing with a pretty decent volume surge as 10yr yields break out of a sideways range. That never sounds like good news. But we'd be willing to entertain that this breakout could be a "false positive" owing to the debt ceiling debate.

As a testament to just how conservatively some lenders approached today from a pricing standpoint, we've seen a reprice for the better merely due to a move from 100-15 to 100-17 in Fannie 4.0's. That gives the longer term MBS chart a sort of "double bottom" look to it between Tuesday and today. 10yr notes, however, are a concern. At 3.003, they look more like "directionally weaker." Let's hope MBS are telling the truth and Treasuries are distorted by the debt ceiling debate. Tomorrow may tell.

Fannie 4.0's being at 100-15 is nothing new for the day. That's been a frequently visited lower level so far. But rather than safely assuming it's some sort of floor, take note of the trend that has clearly developed in the charts. The highs and the lows are generally falling on the same downwardly sloped lines. The fact that the line resting along those highs can also be connected to yesterday's highs further adds to the sense of a solid downtrend in MBS prices. So while we can hope that 100-15 turns out to be some sort of support level from which MBS can fight back against losses, the important thing is to recognize the trend. And as you know, the trend is the trend, until it's not anymore. In other words, MBS are assumed to be in a downtrend until that upper line is broken with volume and a bit of follow through. Possibilities of reprices for the worse remain, although decrease somewhat the longer 100-15 is held.

(Reuters) – A political stalemate over the consumer protection bureau created under the Dodd-Frank financial regulation overhaul is allowing payday loan firms and other non-bank lenders to escape the agency’s authority for now, but industry participants say they have nonetheless boosted lending and disclosure standards. Institutions including non-bank mortgage companies, student loan providers and payday lenders, and their trade organizations discussed their views with Thomson Reuters before Thursday’s official launch of the Consumer Financial Protection Bureau. If the Senate had confirmed a director nominated by President Barack Obama, Thursday would have been the first time the bureau, or CFPB, had the authority to oversee non-bank lenders. But with Senate Republicans saying they will refuse to vote for any nominee unless the Dodd-Frank Act is amended, and without talks to resolve the months-long impasse, the non-bank lenders will be without CFPB compliance obligations for the foreseeable future. But non-bank lenders have had to live up to plenty of tightened federal, market and self-imposed compliance benchmarks in the year since Dodd Frank was passed, said John Johnson, chairman and chief executive of one of the biggest firms, Mortgage America, headquartered in Birmingham, Alabama. Johnson said his company has had to comply with the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act, and was complying with the Dodd Frank ability-to-repay mandate because secondary mortgage investors are demanding more proof they will be repaid.

(Reuters) - Peripheral debt rallied strongly on Thursday as investors welcomed draft documents suggesting that European leaders would agree to expand the role of the region's bailout fund as part of a deal to rescue Greece. Yields tumbled on short-dated Greek debt, down more than 4.5 percent in the two-year segment, while the more liquid Italian and Spanish debt markets also showed substantial relief. The region's triple-A benchmark German debt sold off sharply. Draft conclusions of the highly-anticipated summit showed a the European Financial Stability Facility could gain sweeping new powers aimed at rescuing debt-laden Greece and stemming the spread of the region's debt crisis. "The rumours around these draft conclusions have already got the market moving positively, and I think think that has further to go," said Niels From, chief analyst at Nordea. "It really shows, in the 11th hour, leadership from the euro zone leaders." Analysts focused on the EFSF element of the wider plan as the most likely to bring relief because it could potentially address the systemic threat seen in the last two weeks as Italy and Spain have been dragged into the debt crisis. "The size of the EFSF, currently 440 billion (euros), is still on the low side to keep it credible in the future. Therefore if they would increase the volume of the EFSF ... then it would be extremely helpful," From said. The European Central Bank signalled, in a policy reversal, that it is now willing to let Greece default temporarily under the crisis response that would also involve a bond buyback and a debt swap, but no new tax on banks. Dealers marked prices on peripheral debt higher, pushing yields on 10-year Greek debt 76 bps lower on the day to 16.7 percent. Yields were down across the region's lower-rated states, but traders said the degree of buying behind the moves had so far been limited.

Since 08, regulators have been in the throes of a classic "reaction mechanism,” a scientific term for the step by step chemical changes that occur based on a certain catalyst event. It's like a Rube Goldberg machine: a single input sets a series of reactions in motion that ultimately add up to the mouse being trapped or the toast being toasted. For our purposes, the catalyst is the late 2008 onset of "the crisis." Ever since, we've observed all the various Goldberg-esque reactions (regulations, lender underwriting guidelines, originator compensation, and much more) that should all ultimately "settle down" into what will eventually be the new status quo. So to summarize: that new status quo is the final result; the crisis was the catalyst; and everything in between is the reaction mechanism. One key component in the reaction mechanism that generally flies under the radar of most originators is that of "Margin Requirements." But in considering the question you might ask yourself when hearing that term, "why should I care?" Here's something to consider. Although the specifics are much more complex, in a basic sense, when part of the mortgage origination value chain is subject to a regulation that increases its costs in some way, it's simple enough to understand that those costs end up getting passed on down the value chain and ultimately end up hurting rate sheets. When Bernanke talks about Dodd-Frank margin requirements putting US companies at a disadvantage or if Fannie/Freddie lament the additional margin provisions imposed on them by FHFA, that notion of "increased costs in the value chain" is all we're really talking about here. Simply put, new margin rules for the GSE's are a hotly debated topic behind the scenes, and current FHFA proposals amount to tougher margin rules. Tougher margin rules mean increased hedging costs for Fannie and Freddie. And increased hedging costs invariably make the entirety of the mortgage value chain more expensive.

(Reuters) - Federal Reserve Board Chairman Ben Bernanke said a proposed rule from U.S. bank regulators regarding margin requirements and derivatives could put U.S. companies at a competitive disadvantage with their international rivals. Bernanke told the Senate Banking Committee on Thursday that regulators are pushing other countries to adopt similar rules and if they do not, U.S. regulators will revisit their proposal. Business groups and lawmakers have complained that the derivatives crackdown in Dodd-Frank will create an unlevel playing field. They argue that the foreign arms of U.S. banks will have to be subject to the costly margin rule while non-U.S. competitors will not. "The best solution we are pursuing... is that we get a global agreement" on margin rules for swaps, Bernanke said. "If that doesn't happen, we will have to think again about how to meet Dodd-Frank's requirements for improved prudential safety, which is what margins are intended to achieve, without disadvantaging our banks." (Reporting by Dave Clarke; Editing by Tim Dobbyn)

This is an early alert. It's too soon to tell if we're about to see a big bounce here or if current losses are going to continue or merely be sustained. Fannie 4.0's have once again fallen to match their lows of the day at 100-15 while 10yr notes are once again flirting with a move up into the 3's. To whatever extent this recent bout of negativity continues, it could soon lead to reprices for the worse. But again, we'd emphasize that this is an early warning of that POSSIBILITY rather than a prediction it will occur. Adjust accordingly based on your knowledge of individual lenders. Some of the more jumpy ones are the first candidates to reprice, but we haven't moved low enough or held those lows for long enough for a most lenders to reprice.

Treasury announced today that next week's auctions would include $35 bln in 2 and 5 yr notes, and $29 bln in 7 year notes, all unchanged from the last time these maturities were auctioned. These supply announcements usually come out as-expected like this, and you'd normally hear some speculation that an auction amount would be changing in the days leading up to the announcement. But there's an outside chance that one of the auction amounts could unexpectedly decrease, which could be read as a positive influence on bond markets.

(Reuters) - If the U.S. economy does not show signs of sustainable improvement this quarter, the Federal Reserve should dig into its toolbox to find new ways to help it along, a top Fed official said on Thursday. The Fed has held short-term rates near zero since December 2008 and, in an unprecedented move, bought a total of $2.3 trillion of long-term securities to stimulate an economy struggling to right itself after the worst downturn since the 1930s. But signs the U.S. recovery is flagging - again - suggest the economy needs more gas, and soon, Chicago Federal Reserve Bank President Charles Evans told a small group of reporters in a joint interview. "If it were easy to do, if we had a very effective policy tool like a positive funds rate, if we could cut that by 100 basis points, then I would almost surely be advocating something like that," Evans said. "But in the absence of that, I think we have to think about the other tools."

(Bloomberg) - The U.S. Treasury Department is exploring a plan that could help 1 million or more homeowners avoid foreclosure, according to housing market executives. The proposal is aimed at promoting modifications of delinquent or defaulted home loans, including writedowns of principal, by bringing fresh private capital into the market. It would apply to mortgages that are bundled into mortgage-backed securities not issued by government agencies. One of the impediments to breaking the nation’s cycle of foreclosures and falling home values is that writedowns can’t happen under the convenants governing such securities. The proposal being looked at by the Treasury is aimed at unlocking the so-called private-label notes that account for about 20 percent of the $6.8 trillion in mortgage-backed securities outstanding. “This is not a silver bullet, but it is one of the tools that should be used,” said James Lockhart, the former regulator of mortgage companies Fannie Mae and Freddie Mac. “We think this would be a way to stop some of the foreclosures, help stabilize neighborhoods and help save some families.” Helping homeowners avoid foreclosure would bolster the housing market, which Federal Reserve Chairman Ben S. Bernanke called “one of the major sources of the slow recovery” in testimony to Congress last week