Stocks rallied Monday as investors placed bets that a recovery in the financial and housing sectors is more likely to occur following the U.S. government’s move to bail out mortgage giants Fannie Mae and Freddie Mac. The Dow Jones industrials gained nearly 300 points.
The announcement Sunday that the Treasury Department was seizing control of the companies, which own or back about half the nation’s mortgage debt, brushed aside investors’ long-simmering worries that the pair would be felled by a spike in bad mortgage debt.
Investors were hoping that the plan to inject up to $100 billion in each of the government-chartered mortgage financiers could not only help lower mortgage rates but perhaps help buoy the overall economy. The move could help banks feel more open to write new mortgages and to refinance existing mortgages at lower rates, offering a possible lifeline to consumers struggling with increasing payments.
But the government’s steadying hand for two institutions that many Wall Street observers had said were simply too big to let fail isn’t likely to alleviate troubles for homeowners who have fallen far behind on their mortgages.