Shares of Fannie Mae and Freddie Mac tumbled to their lowest levels in more than 17 years yesterday on concern the government will be forced to bail out the mortgage-finance companies, wiping out common stockholders.

Fannie Mae’s stock slid more than 22 percent, or $1.76, to $6.15 yesterday, while shares of Freddie Mac fell 25 percent, or $1.46, to $4.39.

Barron’s financial news magazine reported over the weekend that the Bush administration is anticipating that the government-chartered companies will fail to raise the equity they need to offset credit losses, prompting the U.S. Treasury to act. The companies’ stock market values are well below the minimum of $10 billion in capital that each would need to raise to “have any credibility,” Barron’s said in its story.

“We agree with the call for Treasury intervention and think it is very, very likely to happen before the end of the third quarter,” said Ajay Rajadhyaksha, the head of fixed-income strategy for Barclays Capital Inc. “Without government help, we think there is very little chance of Freddie completing a significant capital raising.”

The government plans to recapitalize Fannie and Freddie with taxpayer money should their capital raising fail, Barron’s said, citing a person in the Bush administration it didn’t identify. A rescue of the companies, which own or guarantee 42 percent of the $12 trillion in U.S. home loans, would include preferred stock with a seniority, dividend preference and convertibility that would wipe out common stockholders, Barron’s reported.

“Some of these things become self-fulfilling prophecies because market confidence is so fragile,” said Karen Shaw Petrou, managing partner of consulting firm Federal Financial Analytics in Washington.

However, a more likely scenario, analysts say, would stop short of nationalizing the two companies and would take the form of emergency loans to Fannie and Freddie from the Federal Reserve or Treasury Department.

The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up due to soaring losses from bad mortgages.

The new government power, enacted by Congress after the companies’ shares plunged to levels not seen since the early 1990s, for several weeks quieted worries that the companies could collapse.

But investors were spooked by the Barron’s article.

Treasury Secretary Henry Paulson, who had spent the last week in Beijing attending the Olympics with his family, was back at work yesterday and aides said he was monitoring financial market developments as he always does.

Jennifer Zuccarelli, a Treasury spokeswoman, said the government has “no intention” of using its authority to invest in Fannie and Freddie and declined further comment.

Denials from government officials have not been soothing investors lately. “You don’t pass that sort of legislation unless there’s some sort of intent to use it,” said Barry Ritholtz, chief executive of FusionIQ, an asset management and research firm in New York.

The housing slump and continuing distress in the mortgage markets have withered the profit margins of Fannie and Freddie, the government-sponsored companies that together hold or guarantee nearly half of all U.S. home mortgages.

In response to last month’s steep slide in Fannie and Freddie’s stock, the Securities and Exchange Commission banned some forms of trading that enable investors to bet that a stock’s price will fall. That order, intended to prevent stock manipulation, expired early last week.

Freddie Mac, in particular, has investors and analysts fearful.

The company earlier this year promised to raise $5.5 billion to shore up its finances but has so far not done so. The company’s sinking share price makes doing so less attractive because the value of existing shareholders’ stake would be diluted.

“We’re certainly poised and ready when market conditions are appropriate,” Chief Financial Officer Buddy Piszel said in a recent conference call. “But there is no need for us to rush.”

“The Barron’s article significantly overstates our financial situation,” said Sharon McHale, a spokeswoman for Freddie Mac. She said the company is “adequately capitalized” and believes “we will get through the current housing market crisis.” Brian Faith, a spokesman for Fannie, wouldn’t comment.

The cost to protect subordinated debt of Fannie and Freddie jumped yesterday to a record amid concern that a government bailout of the two biggest U.S. mortgage-finance companies will subject those debt holders to losses.

Credit-default swaps tied to about $19.2 billion of the debt rose to a record after Barron’s said it’s likely the government will need to inject equity capital, wiping out common shareholders and potentially leading to losses for preferred stockholders and subordinated debt owners.

Contracts on Fannie’s subordinated debt increased 50 basis points to 328 basis points while contracts on Freddie jumped 51 basis points to 328, according to CMA Datavision.

“The risk scenario is that even if they ultimately get paid par, they might have deferred coupon payments,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Holdings USA Inc. “A more likely scenario is that the sub notes wind up being money good, but it’s still not clear.”

Washington-based Fannie Mae and McLean, Va.-based Freddie Mac, are the nation’s largest buyers and backers of mortgages. But they lost a combined $3.1 billion between April and June. Half of their credit losses came from so-called Alt-A loans, which were made to borrowers with solid credit but little proof of their incomes, or small or no down payments.

Brian Faith, a Fannie Mae spokesman, said in an e-mailed statement that the company “continues to exceed our regulatory capital requirements. … We continue to provide stability and liquidity to the housing market and we will continue to play a key role as the market recovers from this cycle.”

The companies have been battered by record delinquencies and rising losses amid the worst housing slump since the Great Depression, posting four straight losses totaling $14.9 billion. Both cut their dividends this month and announced plans to slow growth after bigger-than-expected losses for the second quarter.

With Associated Press reports