Is the end in sight?

Or, to paraphrase Winston Churchill, is this just the end of the beginning?

All the talk of losses at mortgage repurchasers Fannie Mae and Freddie Mac leading to a government bailout is pretty much out the window today, at least among Wall Street investors, who have sent the companies' stocks rebounding from recent 52-week lows.

Fannie Mae, which hit a 52-week low of $18.52 on Monday has nearly doubled in value since then, breaking through the $35 mark as I write.

Shares of Freddie Mac, which hit its 52-week low of $16.59 a week earlier (March 10), have more than doubled in value since then, nearing $34 in late morning trading.

Most financial stocks are bouncing back this week as well, as investors digest the Federal Reserve's actions over the weekend to provide more liquidity to markets (which have gone way beyond cuts in short-term interest rates) and the rescue/sale/downfall of Bear Stearns. For Fannie and Freddie, the extra leeway government regulators granted them yesterday to buy up $200 billion in mortgages doesn't hurt either.

We will probably hear this prediction many times in coming months, and it will even longer before we know whether it's true, but Punk Ziegel financial analyst Richard Bove will make headlines by being the first to call it:

"I do, in fact, believe that the crisis is over. There will be more negative developments but they will be meaningless," Bove is telling his clients, Reuters reports. Bove concedes that his prediction "sounds ridiculous given the conviction on the part of most commentators that the worst is yet to come; the extent of the decline is unknown; and that the length of the decline is similarly unclear."

Barron's commentator Randall Forsyth says it's too early to declare the crisis has passed, but he says the Fed has finally figured out how to channel liquidity where it's needed -- into credit markets. Until now, investors had been taking the easy money the Fed has made available and making bets on commodities like gold, oil and foreign currencies.

"The Fed and the GSEs are working to channel credit where it's needed most, the mortgage market, and less in being diverted to pump up commodity prices," Forsyth writes. "Not coincidentally, spreads on Fannie and Freddie mortgage-backed securities narrowed at the same time commodities tumbled Wednesday."

If the credit crunch is in fact easing, home buyers may see lower interest rates (long term rates are coming down this week and could continue to do so, assuming inflation doesn't get out of hand). Mortgage lenders may be able to ease some of the more stringent underwriting standards they've been forced to implement.

That could help get would-be home buyers back into the market, slowing or halting home price declines. Slowing down the erosion of equity could help slow or reverse growth in delinquencies and foreclosures, which would prop up the bottom lines of banks and investors with big money tied up in mortgages and allow them to lend more freely. A virtuous circle, rather than the viscous cycle we've been in for months.

All speculation for now, but it's nice to see Wall Street seems to be willing to bet that's what's happening.

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