Shares of Fannie Mae and Freddie Mac dropped steeply Monday in response to a Barron's report citing a Bush administration source who said the Treasury Department ultimately will have to nationalize the government-sponsored enterprises.
The claim sent investors scrambling, since a nationalization likely would wipe out shareholders.
Shares of Fannie fell nearly 25%, to $4.39. Freddie's stock fell more than 22%, to $6.15.
Problems were further compounded at Freddie by a planned debt sale Monday that was not received as positively as expected.
Treasury Secretary Henry Paulson asked Congress last month to allow him to purchase shares of Fannie and Freddie and to provide them a higher credit line. He argued that the authority would go unused but would go a long way toward reassuring Wall Street.
Congress approved the measures, and a Treasury spokeswoman said Monday that the authority would not be necessary.
"As the secretary has said many times, we have no intentions of using this authority," she said.
A Fannie spokesman said the GSE "continues to exceed" its capital requirements. "We have undertaken a series of initiatives, including raising more $7 billion of additional capital in the second quarter and bolstering our loss mitigation efforts, to help us manage through this very difficult housing market."
Freddie and the Federal Housing Finance Agency did not respond to requests for comment.