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What gives?
In part what gives is investor sentiment that things cannot get much worse.
Wachovia and Regions shares are dragging near 52-week lows, and optimistic investors figure it has to get better.
A more important factor driving share prices is a realization that Washington will not let major banks fail.
The latest indication came Wednesday when the U.S. House agreed to bail out Fannie Mae and Freddie Mac.
It came on a 272-152 vote, with 45 Republicans voting for it.
The bill will go to the Senate next.
Bush initially threatened to veto the bill, but said Wednesday the bill "was too important to the stability of our nation's housing market, financial system and the broader economy not to be enacted immediately."
U.S. Sen. Richard Shelby, R-Tuscaloosa, is the ranking member of the Senate Banking Committee.
"This might be an approach that will work, it might not be, but it will probably bring some type of confidence back to the market that we're not going to let Fannie Mae and Freddie Mac go under," Shelby said.
Some Republican senators threatened to slow the measure unless it included a provision barring Fannie Mae and Freddie Mac from lobbying and making campaign contributions.
A major percentage of Wachovia and Regions' losses came from bad mortgages, and the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) are major supports for both banks' mortgage businesses.
They buy many of the mortgages that Wachovia and Regions issue.
Effect on Decatur
Wachovia, which has two Decatur branches, posted losses of $8.9 billion Tuesday. It is laying off more than 6,000 workers, but officials said Decatur would not be affected.
Regions, which has eight branches in the Decatur area, reported a 55 percent drop in earnings in the second quarter. It had to set aside $300 million to cover bad loans. It eliminated 600 positions in June, most in connection with its acquisition of AmSouth.
The banks' troubles have a direct impact on the Decatur housing market.
"We adopted a more rigorous and disciplined underwriting and review process," said Regions Chief Executive Dowd Ritter. "We placed a moratorium on certain types of loans, including land and condominium loans."
Ritter said Regions is trying to use the crisis as an opportunity.
"I am trying to spend a lot of my time as I did this morning talking to our employees about focusing on taking business away from other people that might be having more trouble than we are," Ritter said, in an earnings conference Tuesday.
Mortgage rates rising
Concerns about Fannie Mae and Freddie Mac are pushing up mortgage rates. The average interest rate for 30-year, fixed-rate mortgages rose to 6.71 percent Tuesday, from 6.44 percent Friday.
Mortgages are a fundamental part of Wachovia and Regions' earnings, and Fannie Mae and Freddie Mac are an essential backbone to their mortgage businesses.
Fannie Mae and Freddie Mac are government sponsored, but owned by shareholders. They are the major players in the U.S. secondary mortgage market. Combined, they own or guarantee about half of the United States' $12 trillion mortgage market.
Shelby advocates creating a strong independent regulator over Fannie Mae and Freddie Mac to shore up their capital and improve management, and the bill in Congress incorporates his proposal.
Defaults skyrocketing
With mortgage defaults skyrocketing, the secondary mortgage market has become the lifeblood of banks like Wachovia and Regions. The failure of Fannie Mae or Freddie Mac would have devastating consequences for most banks involved in the mortgage business.
In theory, Fannie Mae and Freddie Mac are as susceptible to the mortgage crisis as any private corporations. Their governmental origins, however, make them obvious recipients of Washington's efforts to prop up a devastated housing finance system.
The House bill gives the Treasury Department the power to make unlimited equity purchases and loans to Fannie Mae and Freddie Mac to prevent a collapse in the firms.
The bill also provides for a federal agency to insure up to $300 billion of refinanced mortgages for struggling homeowners.
The housing bill would create a program aimed to help the estimated 400,000 Americans with sub-prime home loans refinance those loans into 30-year, fixed-rate mortgages backed by the government. It sets aside $3.9 billion to help buy and renovate homes in hard-hit neighborhoods.
Higher cap on mortgages
Fannie Mae and Freddie Mac would have a higher cap on the size of mortgages they may purchase. The new limit would be $625,000, or the median home price plus 15 percent, whichever is lower.
States could offer an additional $11 billion of mortgage-revenue bonds to refinance sub- prime loans.
The bill includes $15 billion in housing tax breaks, including a $7,500 credit for first-time buyers who buy a home by July 1, 2009.
It also allows people who do not itemize their taxes to claim a $500 to $1,000 deduction on their 2008 property taxes.
The bill would let homeowners trapped in mortgages they can't afford, on homes that have dropped in value, escape foreclosure by refinancing into more affordable, fixed-rate loans backed by the Federal Housing Administration. Lenders would have to agree to take a loss on the existing loans.
The United States is facing its worst housing downturn since the Great Depression.
Shares rising
Wachovia Bank shares were up 5 percent at close Wednesday, to $17.65. Regions Financial Corp. shares were up 3.5 percent, to $11.80.
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