Mortgage crisis deepens

WASHINGTON (AP) - Wall Street and Washington wrestled Friday with how to shore up mortgage giants Fannie Mae and Freddie Mac, two troubled pillars of the economy whose failure would deal a devastating blow to the already crippled housing market.

As investors grew more convinced that only some type of government bailout could rescue the firms, Treasury Secretary Henry Paulson said the focus was to support the pair ''in their current form'' without a takeover.

The government was considering giving Fannie and Freddie access to the Fed's emergency lending program as one option to prop up the firms, said Sen. Christopher Dodd, D-Conn., citing conversations with Fed Chairman Ben Bernanke and Paulson.

A Fed spokeswoman said the central bank had not talked with Fannie and Freddie about the emergency lending program. The spokeswoman declined to discuss any other options being considered.

Both companies issued statements late Friday calling their financial positions solid. Freddie Mac said it did not see an immediate need to raise fresh money, and said other options included cutting its annual shareholder dividend, which costs $650 million a year.

Investors drove Fannie and Freddie shares to 17-year lows before the stocks recovered somewhat. The turmoil, combined with a new high for oil prices, helped send the Dow Jones industrials briefly below 11,000 for the first time in nearly two years. The Dow finished down about 1 percent at 11,100.54.

Fannie and Freddie were created by the government to provide more Americans the chance to own a home by adding to the available cash banks can loan customers. Shares of both companies are publicly owned.

Their importance to the housing market and overall economy is hard to overstate: Fannie and Freddie either hold or back $5.3 trillion of mortgage debt, or about half the outstanding mortgages in the United States.

''Without them, our economy would collapse,'' Piper Jaffray analyst Robert P. Napoli said.