The situation in housing is taking a turn for the surreal. As of tomorrow, bankrupt Fannie Mae will offer deadbeat housing speculators, aka homeowners who bought at the market peak and now can't pay their mortgage, the option to live in their foreclosed upon home while renting it out on a month-to-month basis from the government. As the WSJ reports, "borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments." The catch: Fannie will be able to hold the home as not listed for sale. In essence the shadow inventory of millions of zombie houses will skyrocket overnight, further complicating any objective analyses of how many houses are available on the market (the answer: many, many more than you think, but the exact number escapes us). And with housing still collapsing, and jobs still non-existent, more and more people are likely to take advantage of this latest taxpayer subsidized boondoggle. It is clear now that the Fed will do everything in its power to attempt a reflation of the previous housing bubble, instead of wiping the slate clean. Taxpayer losses be damned: there are investment banks with horrendous balance sheets that need bailing out.

Some more from the WSJ:

Fannie Mae wouldn't say how many homeowners it expects will take advantage of the program. The company acquired 57,000 properties through foreclosure during the first half of the year, bringing its total real-estate owned inventory to 63,000 properties valued at $6 billion. The rental program will allow Fannie to hold inventory off of already saturated housing markets and makes a bet that the housing market will be stronger one year from now.

And from some deeply probing, permabullish and procyclical commentary that could come from any of a handful of hedge fund managers who implded last year when the market did the unthinkable and actually corrected:

"I'm sure Fannie is hoping that when they sell the properties, the values will be higher," says David Berson, chief economist for PMI Group Inc., a private-mortgage insurer.