Economy Watch: European Rumors Move European Market

By Dees Stribling, Contributing Editor

The European Central Bank has been the subject of a new wave of speculation and news reports in recent days, to the effect that the sort-of central bank for the euro-zone will begin buying bonds of the currency bloc’s weaker nations to prevent a zone meltdown. So far, the ECB hasn’t formally committed to any such plan, but seems to be hinting at one, especially when it comes to Italy and Spain, whose inflated borrowing costs this year threaten to derail whatever progress they’re making on reducing their sovereign debt.

At this point in the dog days of summer, rumor is enough to move euro-related markets. On Tuesday, 10-year Portuguese debt dropped to its lowest level since that country’s bailout last year, and yields on Spanish and Italian debt, though still elevated, have been dropping recently as well. In the case of Spanish 12- and 18-month debt, as low as 3.07 percent, down 80 basis points from the high in July. Even the euro itself edged up against the dollar and the yen on Tuesday.

Another indication that investors are paying very close attention to the euro-zone (that or grasping straws) is the attention that Bundesbank member Jorg Asmussen received when he seem to tell a German newspaper this week that the German central bank would be OK with the ECB trying to control “peripheral” bond yields (Spain, say) provided that it isn’t called a bailout. Apparently that comment helped moved markets, too.

More new rules for GSEs

There were more changes for Fannie and Freddie on Tuesday when the FHFA, the federal agency that oversees the GSEs, said that it’s issuing new guidelines to their mortgage servicers to “align and consolidate existing short sales programs into one standard short sale program.” The goal of the streamlined program rules is to enable lenders and servicers to more easily qualify eligible borrowers for a short sale.

The new guidelines, which go into effect Nov. 1, will permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage, provided they have an eligible hardship. Servicers will be able to expedite processing a short sale for borrowers with hardships such as death of a borrower or co-borrower, divorce, disability or relocation for a job without any additional approval from Fannie Mae or Freddie Mac.

Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite short sales. Previously, second lien holders could and did slow down the short sale process by negotiating for higher amounts. Also, the job relocation provision will (it’s hoped) encourage employee mobility. “The new standard short sale program will also provide relief to those underwater borrowers who need to relocate more than 50 miles for a job,” noted FHFA Acting Director Edward J. DeMarco in a press statement.

Philly Fed’s coincident indexes not strong

According to the Philly Fed on Tuesday, its coincident indexes for the 50 states for July 2012 were more positive than negative, but not by much. In the past month, the indexes increased in 22 states, decreased in 17, and remained stable in 11. The four state-level variables in each coincident index are payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements.

Unlike the European indices, Wall Street had a down day on Tuesday, with the Dow Jones Industrial Average sliding 68.06 points, or 0.51 percent. The S&P 500 was off 0.35 percent and the Nasdaq down 0.29 percent.