Did the Fannie/Freddie Bailout kill portfolio lending?

With the announcement on Sunday of the GSE’s bailout by the U.S. Treasury, has the market for non-conforming loans been effectively subjugated to the history books? I am not talking about the toxic mortgages that are now infamous, such as pay option ARMs. I am talking about A paper products that are just too large to be purchased by Fannie or Freddie.

Why in the world would an investor bother buying a non-conforming loan when they can buy a federally guaranteed loan backed by your tax dollars? Yes, this new-found confidence in Fannie and Freddie is fantastic…I mean rates dropped like a rock for the vast majority of loans. However, that last bastion of free market capitalism–small regional banks that specialize in lending to a specific demographic–have been punched in the gut. These banks have lost millions in capital, and now their niche–portfolio lending–has lost its luster.

Hopefully, very soon investors realize the value of these companies, before everyone has to wait in line at the U.S. Treasury for their loan.