Heightened expectations of a government bailout of U.S. home-funding giants Fannie Mae and Freddie Mac drove the two companies' shares down more than 14 percent on Thursday, as investors feared such government action would wipe out shareholders.
The companies' stocks have fallen for five straight days, losing more than half of their value just this week and sinking to the weakest in nearly two decades.
Closely watched analyst Dick Bove of Ladenburg Thalmann said the government should recruit financial industry leaders to oversee dismantling of the two companies.
"The only rational action" to be taken relative to Fannie and Freddie 'is to get rid of them," Bove wrote in a research note.
Freddie shares tumbled by 17.5 percent to hit $2.68 at one point in early trade on Thursday, while Fannie fell 14.5 percent to $3.75.
In contrast, the debt issued by Fannie and Freddie has surged relative to Treasuries this session and last, on the view that a government bailout would secure repayment.
Investors are closely watching the performance of the companies' debt, given that they will need to roll over $225 billion of debt by the end of September, according to Barclays Capital.
The companies' ability to access the debt markets is essential for them to keep buying mortgages and helping stabilize the worst U.S. housing market since the Great Depression.
A new Freddie Mac five-year note that was sold on Tuesday to yield 1.13 percentage point more than Treasuries has since drawn enough investor demand to slash the risk premium to 0.98 percentage point on Wednesday and about 0.89 percentage point early Thursday.

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