Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), United States’ main providers of home loans, fell for a third day amid growing concern that the government may be forced to take over the companies.

Fannie Mae dropped $5.03, or 38 percent, to $8.17 at 9:37 a.m. in New York Stock Exchange, its lowest level in the past 17 years, while Freddie Mac fell $3.61, or 45 percent, to $4.39. For the year, Fannie is down 67% and Freddie 77%.

However, the two firms would have to post pretax losses and writedowns of about $77 billion before the U.S. would be compelled to start a rescue.

The Bush administration is currently considering a government takeover of one or both the mortgage finance giants if their problems worsen, said Graham Fisher & Co. Inc. analyst Joshua Rosner for Bloomberg.

The two companies own or guarantee almost half of the $12 trillion in U.S. home loans. If the administration decides that a government takeover would be the solution, the common stock of each company will be worthless after the measure is implemented.
 
“The administration is considering all options in its contingency planning,'' said Rosner, who recently met with officials in Washington.

The two companies play a key role in the nation’s housing market. The two government-sponsored enterprises (GSE) of the United States federal government are a very important source of funding for banks and other home lenders. If they won’t be able to play that vital role, it would considerably elevate the cost and limit the availability of mortgage loans, causing much more problems for the already battered housing prices and sales.

During a campaign speech in Belleville, Michigan, presidential candidate John McCain said the two companies “must not fail”. The Republican Arizona Governor said Fannie Mae and Freddie Mac “are vital to Americans' ability to own their own homes.”