By now, you’ve probably already heard about the Federal Reserve’s “Operation Twist.” That’s the program through which the central bank hopes to push down longer-term interest rates. But in their September meeting they announced another policy changes that is arguably just as important. The Fed will begin reinvesting the maturing principal from their mortgage securities in new government-backed mortgage-backed securities. This could have a very significant effect on the housing market — but not all good. Read more here.

It really is a small world.

U.S. financial markets have risen and fallen in the past week on European financial news as well as domestic economic turmoil. With record unemployment in the U.S., weak economic growth and a continued threat of recession, the troubles in Europe may seem like someone else’s problem.

Think again.

Debt. Spending without significant revenues. Slowing economies. This is what Europe faces right now, too. (Scroll to bottom to see chart of debt by nation.)

“Much of the significant demand for our goods and services is from offshore. If demand shrinks due to the problems (Europe is) having, that creates problems in this country,” said Tony Cherin, professor emeritus of finance at San Diego State University.

Europe’s financial concerns are compounded by the system of the European Union, a 27-member organization with 17 countries using the euro as common currency. The financial stability of each nation is directly tied to that of the others: if one gets in trouble, the rest of the nations are on the hook. Read more here…

Renting, blowing up foreclosures not a bad idea

Commentary: Administration should have been doing this all along

Last Update: 12:35 PM ET 8/10/11

WASHINGTON (MarketWatch) — The Obama administration on Wednesday took a step to what they should have been doing all along: renting, or even demolishing, foreclosed homes.

At issue is the glut of foreclosed properties the U.S. government owns via the bailed-out Fannie Mae and Freddie Mac, which are still the two main players in the housing industry. At the end of the second quarter, Fannie Mae and Freddie Mac owned more than 200,000 single-family foreclosed properties — and that portfolio will grow, even if legal fights delay that process by another quarter or two.

That glut of distressed properties available, which account for one in three sales of existing homes, has helped limit both prices and activity in the market. CoreLogic reports that home prices on a 12-month basis fell 6.8% in June, but the fall was just 1.1% when distressed sales are excluded…read more here

Home values in the U.S. had their smallest decline in more than four years in the second quarter, as the share of borrowers with negative equity shrunk, Zillow Inc. said today.

In the second quarter, 26.8 percent of single-family homeowners with mortgages owed more than their houses were worth, compared with 28.4 percent in the previous three months, the Seattle-based company said. Values fell 0.4 percent from the first quarter, the smallest drop since the first three months of 2007, when values also slipped 0.4 percent, according to Zillow, which runs a website with property-value estimates and real estate listings…Read more here

S&P Downgrades Fannie and Freddie Credit Ratings, Other Agencies Tied to U.S. Debt

Standard & Poor’s downgraded the credit ratings of mortgage giants Fannie Mae and Freddie Mac Monday, expanding on its decision to downgrade U.S. debt in a market-roiling set of announcements.

President Obama is expected to discuss the first-ever downgrade at 1 p.m. ET. The White House has kept mostly silent since S&P made its decision public Friday night.

Read more here!