(Bloomberg) - Lots of changes that have already taken place in the almost $11 trillion U.S. mortgage market have nothing to do with Dodd- Frank. Government-backed mortgage securitizers Fannie Mae and Freddie Mac have raised underwriting standards, the Federal Housing Administration more than doubled its fees, and many banks remain reluctant to lend at all. Even without the new law, mortgages are more expensive and harder to get. Still, Dodd-Frank, which marks its one-year anniversary on July 21, is expected to take those changes a few steps farther. The new rules are designed to tighten additional weaknesses in the mortgage system that contributed to the crisis, including no-downpayment loans, the “originate-to-distribute” business model, and mortgages with confusing terms and deceptively low teaser rates. The most notable Dodd-Frank provision is a risk retention measure that would require most lenders and investors to keep a 5 percent stake in loans they bundle or sell. The risk retention rule could also affect homebuyers by requiring them to keep their own “skin in the game” with a 20 percent downpayment on a house in order to get the cheapest loan. More than 40 housing, financial and consumer groups have aligned to fight the plan, saying it would restrict lending and discriminate against low- and moderate-income buyers. Nearly 300 members of Congress have criticized the risk retention proposal. On June 7, regulators extended comment on the rule from to Aug. 1, effectively delaying implementation. After that, regulators will work on revising the draft plan. “This is one area where Congress may take another look. There could be some fine tuning,” said financial services lawyer Richard J. Andreano Jr., a partner at Patton Boggs LLP in Washington.

Just a quick note by way of addendum to the previous alert. Fannie 4.0's were just down another 3-4/32nds from last check at 100-16+ which temporarily increased reprice risk but things bounce back rapidly to 100-22+ . We had been in the process of typing (when 4.0's hit 100-16) that current losses were not a significant indicator of longer term market preferences. Volatility, Yes. Directional momentum, no. 4.0's at 100-22 seem to be voicing their support for that stance.

Fannie Mae 4.0s are back down in the low 100-20's (currently 100-22+) after hitting 100-28 just before Bernanke. It's conceivable that lenders who released rates early could consider repricing on the 6/32nds drop, but the likelihood of that is questionable. Stocks are hitting roughly their best levels from yesterday but as yet, it's not clear they're going higher. 10yr notes dipped just under 2.90 before Bernanke and are now at 2.921, again approaching the long term trend-line of indecision noted earlier today. Basically, we had been waiting for the 1pm auction as the next key market mover of the day and that hasn't changed despite the slight uptick in short term reprice risk. If you were resolved to floating into auction results, you may have a small admission fee.

(Reuters) – Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank is ready to ease monetary policy further if the economy weakens and inflation moves lower, suggesting policymakers are actively mulling further stimulus. “The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” Bernanke said in prepared testimony before the U.S. House of Representatives Financial Services Committee. Tellingly, Bernanke specifically noted Fed forecasts for June, which were already revised down significantly from April, had not incorporated recent data, particularly last Friday’s dismal employment report. That data showed job growth essentially grinding to a halt in the last two months, pushing the jobless rate up to 9.2 percent. Minutes from the Fed’s June meeting, released on Tuesday, showed some policymakers believe the Fed should stand ready to provide more support to the economy if the recovery flags, rekindling the threat of a debilitating downward spiral in prices and wages. Others on the policy-setting Federal Open Market Committee, however, felt inflation risks might force the central bank to withdraw stimulus sooner than is currently anticipated. Bernanke did not mention two key issues that were likely to come up repeatedly during the question and answer session before lawmakers: The fight in Washington over the U.S. debt ceiling and a European debt crisis that appears to be getting worse by the day. (By Pedro da Costa and Mark Felsenthal)

(Reuters) - Eric Rosengren, president of the Boston Federal Reserve Bank, described Friday's monthly jobs report from the U.S. Labor Department -- which showed the economy created a much less than expected 18,000 jobs in June -- as "dismal". "With fiscal austerity slowing down economies both here and abroad, it will in my view be important to maintain sufficiently accommodative U.S. monetary policy so that national labor market conditions can improve," Rosengren, who is not a voter on the Fed's policy committee this year, told a forum in Worcester, Massachusetts. Rosengren is one of the U.S. central bank's more dovish officials on inflation. Rosengren said the situation in Europe is a reminder of the "significant downside risks" facing even his forecast for only a "very slow improvement in the economy." Rosengren said he would not describe the first half of the year as a "slow patch", but rather as continuation of the weak recovery from recession, in which the last quarter of last year was the only one that saw stronger growth. "The only quarter of strong economic growth so far in this recovery has been the one containing the holiday season at the end of last year," he said. He does expect a pick-up in the second half though, with growth ranging between 3 and 3.5 percent. "With housing activity and government spending likely to continue to be unusually weak for a recovery, we need to see consumer and business confidence improve so that consumption and investment can offset the weaker growth in other components of gross domestic product," he said. (Reporting by Ross Kerber, writing by Kristina Cooke, Editing by Chizu Nomiyama)

Fannie Mae 4.0's are currently at 100-23, 12/32nds lower than the last mark yesterday, although please note 10 of those 12 ticks are chalked up to "the roll" (July coupons settled, now looking at August). So the net effect is a 4.0 coupon that's organically only down 2 ticks. Not bad at all considering 10yr notes are half a point off and more than 0.05 pct higher in yield. We'd expected/hoped to see that tightening after the roll, but Treasuries being weaker on the day helps a lot (MBS tend to outperform TSYs into weakness). As you might guess, news and data out of the EU are again mostly responsible for where we find market levels to start the day and our domestic economic data has done little to change that. Highlights include tighter benchmark spreads for Periphery countries and a very poorly received auction of German Bunds (think US Treasuries, EU Style). The weakness brought our own Treasury market back to interesting levels, with the 10yr note once again towing the long term trend-line that it broke through yesterday (remember, breaking through requires "confirmation," via follow-through and volume. As yet, we don't have that follow through and neither will we get it unless today's 10yr auction is, well, awesome. It would have to be ridiculously awesome to get confirmation of a move into the 2.8's with another auction looming tomorrow and tons of econ data over the next two days. In the meantime, we'll take whatever relative outperformance MBS are feeling up to and wait for econ data, Fed-Speak, and auctions with the assumption that bond market inertia is a mostly sideways affair all things being equal.

The US Labor Department today reported Import Prices fell 0.5 pct in June. Not surprisingly, oil and the things shipped by burning oil led the charge. Petroleum itself was down 1.6 pct vs non-petroleum products down only 0.2 pct. All export prices rose except Industrial Supplies which fell 0.7 pct. Exports overall, are up 9.9 pct year over year while import prices overall, are up 13.6 pct year over year.

(Reuters) - Applications for home mortgages fell last week for the fourth week in a row, hurt by a drop in refinance demand even as interest rates tumbled, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.1 percent in the week ended July 8. The MBA's seasonally adjusted index of refinancing applications lost 6.2, while the gauge of loan requests for home purchases dipped 2.6 percent. The refinance share of mortgage activity decreased to 65.6 percent of total applications from 66.4 percent the week before. Fixed 30-year mortgage rates averaged 4.55 percent, down from 4.69 percent. (Reporting by Leah Schnurr; Editing by Leslie Adler)