(Reuters) - A top U.S. bank regulator pushed back on Thursday against complaints from large banks about the amount of capital they will be required to hold. Federal Deposit Insurance Corp Chairman Sheila Bair said new capital standards should be high and should take effect quickly. "Full speed ahead and the higher the better," she said at an event hosted by the Council on Foreign Relations. Regulators argue that the higher capital standards will help make the financial system more stable, but banks are complaining that such requirements would restrict their ability to lend. The Dodd-Frank financial oversight law requires the Federal Reserve to draw up enhanced capital standards for banks with more than $50 billion in assets and other financial institutions regulators determine are important enough to the smooth functioning of the financial system that they need increased supervision. International regulators, as part of what are known as the Basel III talks, are also negotiating over how much additional capital large international banks should hold. Basel participants have already agreed that at a minimum banks should hold top-quality capital equal to 7 percent of their risk-bearing assets. Negotiators are now focusing on how much above that level large, internationally active banks will have to hold. Many analysts believe international regulators will settle on requiring these banks to hold an additional 3 percent in capital.

We apologize for the abundance of alerts but we feel it's a necessary evil based on the unfriendly behavior of mortgages today. Following a lackluster 30-year bond auction, production MBS prices have drifted even lower, erasing all of yesterday's rally and eating away most of Tuesday's positive price action too. The Fannie Mae 4.0 coupon is currently -17/32 at 100-31. After breaching psychological support at 101-00, we find our next layer of support at 100-26, or the rally "lift-off level" we illustrated in this post: http://www.mortgagenewsdaily.com/mortgage_rates/blog/214242.aspx......REPRICES FOR THE WORSE REMAIN A THREAT.

The final government fundraiser of the week has been completed. Treasury just sold $13 billion 30-year bonds. Demand as measured by the bid to cover ratio was close to average at 2.63 bids submitted for every 1 accepted by Treasury. The "high-yield" produced by dutch style bidding was 4.238%. This was 3bps above the 1pm "When Issued" yield of 4.208%, which when combined with an average BTC ratio indicates investors were willing to buy this debt but only at a cheaper price/higher yield. Dealers were the reluctant winners of the gold star for most auction support provided. The street added $6.8bn in inventory or 52% of the entire issue. This is an above-average award for primary dealers and likely more than they bargained for considering their weak hit rate (what they were awarded vs. what they bid on). Direct bidders added an average 9% of the competitive bid but were awarded a below average 25% of what they bid on (lackluster effort). Indirect bidders took home a below-average 38.4% of the issue but 77% of what they bid on. That tells us indirects buyers were willing to support the fundraising process but only if Treasury would offer a steeper price concession (discount). Plain and Simple: The obvious theme in this auction was a willingness to buy but only at cheaper prices. Dealers reluctantly did the majority of heavy lifting. Market Reaction...Production MBS coupons have fallen to new intraday lows and benchmark 10yr TSYs have broken through psychological support at 3.00%. If you haven't received reprices for the worse, they are coming.

(Reuters) - U.S. household wealth rose by $943 billion in the first quarter, less than half the revised $2.4 trillion surge in the previous quarter, and household debt contracted at a 2 percent annual rate. Gains from stocks and other investments boosted household net worth to $58.1 trillion, but the gains were tempered by a decline in the value of real estate, data released by the Federal Reserve showed on Thursday. Households have struggled to rebuild their net worth after the collapse of the housing market and the financial crisis, and wealth is still well below its peak of $64.2 trillion at the end of 2007, the figures show. Non-financial businesses held $1.91 trillion in liquid assets, such as cash, in the first quarter, up from a $1.9 trillion in the previous quarter, the data showed. (Reporting by Ann Saphir; Editing by Neil Stempleman)

(Bloomberg) - Federal Reserve Vice Chairman Janet Yellen said the housing market will undergo a “long, drawn-out recovery” and the Fed is working with other agencies to prevent foreclosures and clear the stock of vacant properties. “Looking forward, I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market,” she said in the text of a speech today in Cleveland. “Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process.” Residential construction and real estate still showed “widespread weakness, except in the rental segment,” last month, the central bank said yesterday in its Beige Book survey of the economy. Fed Chairman Ben S Bernanke said this week that the “frustratingly slow” U.S. recovery warrants sustained monetary stimulus, even while growth should speed up in the second half of the year. “For its part, the Federal Reserve will continue to use its policy tools to support the economic recovery and carry out its dual mandate to foster maximum employment in the context of price stability,” Yellen, 64, said in remarks at a Cleveland Fed policy conference. The U.S. economy expanded at a “steady pace” during May in all but four of the Fed’s 12 regions, according to the Beige Book report. Policy makers described the housing market as “depressed” after their most recent meeting in April. Home prices in 20 cities dropped in March to the lowest level since 2003, showing housing remains mired in a slump almost two years into the economic recovery. The S&P/Case- Shiller index of property values fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said in a report released on May 31.

(Reuters) - Recent housing and employment data suggests the U.S. economy is at a tipping point where a double-dip recession is possible and home prices could have much further to fall, a veteran economist said on Thursday. Robert Shiller said the recent uptick in unemployment is not yet enough of a sign as to which way the recovery is heading. But if unemployment continues to rise in the coming months, it could suggest another recession. "Whether we call it a double-dip or not, I think there is a risk," Shiller told Reuters Insider in an interview. Likewise, data showing U.S. home prices fell into a double dip in March could prove to be either a seasonal effect over the winter months or part of a downward trend. "My gut feeling is we might see a continuation of the decline" in home prices, Shiller said earlier on Thursday at a Standard & Poor's housing summit. He added that a 10 percent to 25 percent slump in real home prices "wouldn't surprise me at all," though he cautioned that was not a forecast. Shiller pointed to the glut of unsold homes on the market and the large amount of homeowners under water on their mortgages as pressuring prices. As for when home prices might bottom, Shiller told Insider that was unclear and it was possible prices could slide for 20 years. "We've seen five years of decline already since the peak in 2006 and I don't see evidence that we're coming out of it," he said. That report, along with other data, including grim jobs figures and a slowdown in manufacturing, suggested that the economic soft patch seen in the first quarter of the year could be more protracted. Home prices had been supported last spring by a tax credit, but the housing market has struggled since the credit expired. Sources told Reuters earlier this week that the Obama administration has grown increasingly frustrated with the country's struggling housing sector and is exploring ways to keep it from weakening further.

"Rate sheet influential" MBS prices have fallen sharply to new intraday lows. The Fannie Mae 4.0 coupon is now -13/32 at 101-02. This is 17/32 off the morning price high of 101-19. If your lender released loan pricing early you are at major risk of receiving a reprice for the worse. If your lender was late to release pricing you too are at risk following the sudden drop in MBS indications. The stock lever can be cited as the main culprit behind bond market weakness. S&P futures are now +15 points (1.16%) at 1291.75 and the 10yr TSY note is -9/32 at 101-08 yielding 2.979%. Treasury will auction $13 billion 30-year bonds at 1pm.

A popular question on the dashboard today has been "Why are mortgages doing so much worse than benchmarks?". Although a 0.90% rally in stocks has put added pressure on Treasuries as the day has progressed, which has helped close the performance gap between mortgages and benchmarks, production MBS coupons are indeed experiencing focused weakness today. In technical terms this behavior would be described as "yield spreads moving wider". In plain english, MBS yields are rising faster than Treasury yields (MBS prices falling faster). WHY? Several reasons can be cited but we don't want to add quantitative confusion to the mix so we'll keep it simple. Mortgages are performing worse than Treasuries because of profit taking. MBS had a great day yesterday and traders are taking gains off the table because the bond market is highly-susceptible to volatility at the moment. This leaves investors feeling nervous in general, to alleviate those anxious feelings accounts are simply moving some money into cash. We call it "flattening out a position". HERE'S A BETTER EXPLANATION OF YIELD SPREADS: http://www.mortgagenewsdaily.com/mortgage_rates/blog/117469.aspx