Stocks surge on Fannie and Freddie bail-out, but does this change the mortgage market?

Hooray for the bail-out ( officially, placed in government-operated conservatorship) or that is what the stock market is telling us. But what will be the impact on the housing market and the overall economy?. Unfortunately, it is less clear that more money will be flowing into housing. If you want to get Fannie and Freddie back to fiscal responsibility you will have to shrink their balance sheets and that means less money in the mortgage market. If you want them to reduce delinquencies and defaults, you will have to stop lending to borrowers who cannot make the payments. This means less money in the mortgage market. Yes, there will be less uncertainty about the funding of the existing portfolio, but the future of housing finance in the US may not improve. Is the intent that we want taxpayers to provide for all of the mortgage-holders who cannot now make payments.? Is the "new" Fannie and Freddie going to take action against delinquent home-owners now that the government is in charge?

Nevertheless, from our interest in global markets, this is good news for the dollar. All of the central banks and foreign investors who have been worried about the uncertainty concerning Fannie and Freddie will see a clearer horizon that will allow them to put their fixed income money to work. Spreads should tighten for the debt.