Financial Winners & Losers: Lehman

Fannie was recently up 12.3% at $6.31, while Freddie gained nearly 14.1% at $4.53. Both stocks eased from earlier gains of as much as 13% and 21%, respectively.

A report from the Mortgage Bankers Association on Wednesday that mortgage applications rose last week likely helped to support the shares, as did research from several analysts calling the hype surrounding a potential government bailout overblown. Both Fannie and Freddie also said on Tuesday that their portfolios expanded at slower paces, indicating a move to conserve capital as they lure investors with higher yields.

Merrill Lynch analyst Kenneth Bruce became the latest to assert that it is "premature" to assume that the Treasury will recapitalize Fannie and Freddie, since "capital depletion would not likely occur for several quarters." Citigroup's Bradley Ball also said on Tuesday that both companies have enough cash to absorb "fairly significant credit costs," but said they may have to raise capital if credit costs increase further or investors shy away from buying mortgage debt.

Fannie elected affordable-housing expert and former investment banker Frederick "Bart" Harvey to fill the last empty seat on its board of directors on Tuesday. CEO Daniel Mudd called him "a perfect addition" to the board due to his experience in "harnessing private enterprise to expand affordable, sustainable housing opportunities."

The confidence tide also seemed to be turning for Lehman Brothers(LEH Quote), which gained 7.5% at $15.08 on Wednesday, its second consecutive trading session of gains as well.

However, Syncora(SCA Quote) fell more than 7.4% to $1.76 as investors continued to punish the company for bad bets on mortgage-backed collateralized debt obligations and a costly termination of credit-default swaps with Merrill Lynch(MER Quote). The bond insurer's stock is down more than 57% so far this year and down more than 90% since the 52-week high of $24.06 reached in September.