For the week ended November 4, 2011

Week in Review: Stocks retreat as Greek debacle roils markets

• Papandreou withdraws referendum plan
• ECB surprises with an interest rate cut
• U.S. employment gains modestly
• China's manufacturing growth slows
• MF Global Holdings files for bankruptcy; CEO Corzine resigns
• Groupon goes public

All eyes were on Europe this week as a political drama unfolded that left the Greek government on the brink of collapse and European leaders considering a monetary unionnnn without Greece. Markets went into a tailspin Thursday when Greek Prime Minister George Papandreou announced he would retract plans to submit Europe's proposed bailout deal for approval through popular referendum. Throughout the day, the world watched as he tendered his resignation, was thrown a lifeline by opponents, and, ultimately, shelved his plan for the vote, as he scrambled to restore political stability and preserve Greece's eurozone membership. Meanwhile, investors waited with caution as the Group of 20 gathered in Cannes, France, to seek ways to shelter the wider euro currency zone from the Greek crisis before its leader faces a confidence vote.

U.S. and global economic news

ECB surprises with an interest rate cut
The European Central Bank caught the markets off guard this week and cut its interest rate, despite elevated inflation as concerns worsened that the credit crisis would push the region into recession. The bank, now under the leadership of Mario Draghi, warned of a "mild" recession at year-end.

Denmark and Australia also cut rates
Denmark's central bank also cut its rate this week, lowering its benchmark below that of the ECB, as the Nordic country seeks to defend its krone's peg to the euro amid the worsening regional debt crisis. The Reserve Bank of Australia lowered its benchmark interest rate for the first time since April 2009, as inflation eased and slower global growth threatened the nation's economy.

U.S. employment gains modestly
U.S. employment climbed by a less-than-forecast 80,000 jobs in October, the slowest pace in four months. The modest pace of job creation made a small dent in the unemployment rate, which fell to a six-month low of 9%.

U.S. productivity grows
U.S. productivity grew at the fastest rate since the start of 2010. For the third quarter, output per hour rose at a 3.1% seasonally adjusted annual rate from the previous quarter. At the same time, the Institute for Supply Management's factory index dropped to 50.8 in October from 51.6 in September. Fifty is the dividing line between growth and contraction.

China's manufacturing growth cools
China's manufacturing growth cooled for the first time in three months. China’s Purchasing Managers’ Index fell to 50.4 from 51.2 in September. That news unnerved markets and pushed crude oil prices below $90 per barrel. China is the world’s second-largest user of oil after the United States.

U.S. and global corporate news

MF Global Holdings files for bankruptcy; CEO Corzine resigns
Broker/dealer MF Global Holdings filed for the eighth-largest bankruptcy in history this week after making bets on European sovereign debt. Jon Corzine resigned as chief executive and chairman Friday and will not seek severance pay according to the company. MF Global owns $6.3 billion of Italian, Spanish, Belgian, Portuguese, and Irish debt as of October 25. (MFS Investment Management has no direct exposure or any ownership affiliation with MF Global Holdings Ltd.)

Groupon and its bank priced its initial public offering at $20 per share, above the $16 to $18 the company had initially sought in order to raise $700 million. The shares began trading Friday on the NASDAQ Stock Market under the symbol GRPN.

Starbucks' fiscal fourth-quarter profit jumped 29% as the coffee company benefited from the loyalty of U.S. customers and its expansion overseas. A new loyalty program, which allows users to transfer money to a Starbucks card and use it like a debit card, has given the company a boost.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com. The Wall Street Journal Digital News

This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.

The week ahead

• On Monday, November 7, Eurostat releases eurozone retail sales for September.
• On Tuesday, November 8, the United Kingdom reports on manufacturing and industrial production.
• Japan releases data on private sector machinery orders on Friday, November 11.
• The University of Michigan releases its Survey of Consumer Confidence Sentiment on Friday, November 11.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.

Mortgage refi plan targets hard-hit borrowers

WASHINGTON (MarketWatch) — President Barack Obama on Monday unveiled a changed mortgage refinance plan that would allow homeowners who have suffered steep price declines on their properties to get cheaper loans.



The Home Affordable Refinance Program, the only program specifically designed for owners whose mortgages are worth more than the value of their homes, is being changed so that more Fannie Mae- or Freddie Mac-guaranteed mortgages could be refinanced. Use external link to see if Fannie Mae has guaranteed your mortgage.

Use external link to see if Freddie Mac has guaranteed your mortgage.

With house prices nationally roughly a third below their peak, there are millions of borrowers who will potentially be eligible to refinance into mortgages near record lows — the 30-year carried an interest rate of 4.11% last week — rather than the mere 894,000 borrowers who have used the program so far.

“These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again,” Obama is due to tell an audience in Las Vegas, the city with the highest foreclosure rate in the country. Nevada is the only state which cumulatively is underwater on mortgages.

The new plan does have its limitations: it will require homeowners to be current on their payments and it’s only for loans sold to Fannie or Freddie by May 31, 2009. And of course, not all loans are backed by the housing giants, though state attorneys-general are separately negotiating a settlement with the nation’s top lenders that may include an element of mortgage modification.

“Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” Obama admitted, according to prepared remarks.

Regulator for Fannie Mae and Freddie Mac, estimates that refinancing could double under the program. Even so, the program would go only a small way in addressing the roughly 11 million homeowners who are underwater.

To spark interest in HARP, the program will lower fees, eliminate the current 125% loan-to-value ceiling, waive lender warranties and eliminate the need for property appraisals.

White House officials say the refinancing could save owners about $2,500 each year.

Gene Sperling, the director of the National Economic Council, said the key element of the plan is the removal of reps and warranties. “Removing reps and warranties has the potential to unleash competition for housing refinance,” Sperling told reporters on a call.

The industry embraced the initiative.

“Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans,” said David Stevens, president and chief executive of the Mortgage Bankers Association. “These changes alone should encourage lenders to more actively participate in HARP.”

He cautioned that “it will take a bit of additional time” even after FHFA guidelines are introduced in November to implement them.



Politically, the plan is the start of a once-a-week effort to show the Obama administration can get things done even when legislative efforts are blocked in Congress, according to the New York Times.

For the economy as a whole, the program is seen having only a limited impact.

Yelena Shulyatyeva, an economist at BNP Paribas, calculates that the program could leave to savings on the order of $2.75 billion — or 0.02% of annual disposable income.

While the households that benefit will see an increase in disposable income of as much as 5% as a result of lower mortgage payments, in the aggregate, the direct impact is not material from a macroeconomic point of view,” she said in a note to clients.

“This would hold even if the program is more successful than the FHFA anticipates. Nevertheless, indirect benefits of the plan include further lowering delinquency rates and alleviating bank losses to a modest degree.”

Steve Goldstein is MarketWatch's Washington bureau chief.