Mortgage-backed securities issued by Fannie Mae and Freddie Mac are improving while the stocks of Fannie and Freddie are plummeting.  Both entities' stocks are down approx 40% this morning from already bargain basement levels.  This is all in the face of record oil prices (oil went above $146 a barrell this morning) and deterioration in the US Treasury bond market as a result of investors concerned about the US government taking on the debt obligations of Fannie and Freddie.  Essentially all the discussion in recent days by regulators, member of Congress and the White House that Fannie and Freddie will not be allowed to fail is boosting investor's perceptions that bonds issued by those two entities deserve less of a risk premium over the 10 year Treasury.  It is important to note that while Fannie Mae and Freddie Mac are reporting losses and expected to do so in the near future their pools of mortgages are of significant higher quality than those which created the mortgage meltdown.  It is not clear whether the crisis is truly a crisis or a media frenzy.   If equity investors calm down and sense that Fannie and Freddie in specific and the US financial sector in general are not in near as bad of shape as the medis is reporting, there could be a sharp rally in equities which would most likely cause mortgage rates to spike again.  The inflation picture does not appear to be getting better and the Fed is not talking about cutting rates.  As a result the prospects for notably lower rates do not appear to be in the cards from a fundamentals perspective.  However, markets do not act rationally, but instead are driven by fear and greed, with fear taking over in the equities market this week.  We continue to recommend a conservative approach of locking in the current gains until it is clear that mortgage rates are moving lower because of a shift in the outlook for long term rates as a result of very poor economic data or very weak inflation data.