Paulson could be forced to act of Freddie and Fannie

The US market has expressed concern that Henry Paulson might be forced to further support government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac, whose shares hit new lows during the week.

With the slow breakdown of the Fannie and Freddie companies, Paulson may soon have to act in the same way he did with Bear Stearns, with shareholders fearing a government bailout could render their existing shares worthless.

Shares in the two companies are down more than 90% over the past year and it has been suggested the only way the companies will raise enough money to soothe the markets is to rely on the government to see them through the housing bust.

Fannie and Freddie are shareholder-owned, though they have been able to borrow at below-market rates thanks to an implicit government backing for their debt.

Paulson said last month he wants to keep the companies, which buy and guarantee around half of all U.S. home mortgages, in their current form to help ease the pain of the housing bust.

But the companies' low-cost funding advantage has eroded, pushing mortgage rates up and adding to the pressure on house prices.