Yesterday saw the first down day in treasury and mortgages in the past four days…..and in this market that feels like an eternity. The only winner on the curve was the 2yr note as its yield fell 4 basis points, to 4.94% early in the day; ten year yields were little changed. You would have to go back to May 3, 2006 to see the gap between 2’s and 10’s this wide. This proverbial “bull steepner” of the curve, is caused when short term rates fall at a faster pace than long term rates on the curve. Currently mortgages are virtually unchanged, the 10yr is hanging tough at 5.14%, and with a light day of economic news the market will probably trade with a technical bias.  

Merrill Lynch is currently holding $800 million in mortgage securities seized from Bear Stearns’ troublesome hedge fund. The fund, which started in ’06 (who starts a sub prime fund in ’06, talk about being late for the big dance and having your mom drop you off outside the gym in the family truckster) has been a loser from the start, down 20% YTD. If your ghoulish appetite for ‘CDO disaster’ talk is insatiable, don’t worry, they’ll be more before we ring in the new year. Stay tuned.

Borrowers are turning to safer mortgages in the second quarter, more likely to choose fixed-rate home loans and shy away from piggyback loans and exotic mortgages, real estate professor Susan M. Wachter said on Wednesday.

This "flight to safety" comes at a time when regulators and lawmakers are scrutinizing the home-loan industry and the overall awareness of high-risk loans is heightening, said Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. She released her second quarter 2007 U.S. Mortgage Payment Index on Wednesday, an evaluation of mortgage products for consumers. Read more on the Fed's mortgage-regulation efforts.

In a news release, Wachter reported that 89% of borrowers with one-year adjustable-rate mortgages refinanced into long-term, secure loans in the first quarter of 2007. More than 60% of all new mortgages originating in January were prime mortgages, she added. In addition, loans with private mortgage insurance rose more than 55% in March compared with February. The mortgage insurance provider Genworth Financial Inc. supplies data for the index, Wachter said.

It is difficult to tell whether the jump in mortgage