Washington - A downward spiral for mortgage giants Fannie Mae and Freddie Mac was unabated Thursday despite reassuring comments from Treasury Secretary Henry Paulson, as fears grew about the firms which underpin trillions of dollars in the housing system.

    Freddie Mac shares plunged 22 percent to 8.00 dollars, down over 40 percent this week and 75 percent this year.

    Fannie Mae sank 14 percent to 13.20 dollars, down 26 percent in the week and 64 percent for the year.

    "The twin titans of lending both face pessimism, from the options pits and analysts," said Mark Fightmaster at Schaeffer's Investment Research.

    Analysts at Charles Schwab & Co. said the shares were roiled by "sobering comments about the solvency of Fannie Mae and Freddie Mac."

    A report in the Wall Street Journal said the Bush administration has held talks about what to do in the event the two firms falter.

    The daily said the discussions have been going on for months as part of normal contingency planning but had become more serious recently.

    Treasury Secretary Henry Paulson told a congressional panel Thursday that US mortgage finance giants Fannie Mae and Freddie Mac are "adequately capitalized."

    Speaking to the House Committee on Financial Services, Paulson said the two government chartered, shareholder-owned finance firms are "working through this challenging period" of a horrific housing slump that has hammered credit markets.

    The two firms "play an important role in our housing markets today and need to play an important role in the future," he said.

    "Their regulator has made clear that they are adequately capitalized."

    At the same hearing, Federal Reserve chairman Ben Bernanke said the government-sponsored firms "are well capitalized now in ... a regulatory sense."

    Bernanke added however that it was necessary for "all financial institutions to expand their capital bases so that they can be even more proactive in providing credit and support for the economy."

    The two firms, which have no explicit government backing despite their government charter, provide liquidity to the housing market by buying mortgages and repackaging them in securities sold to investors.

    Freddie Mac has a loan portfolio of 1.5 trillion dollars and Fannie Mae's is over 700 billion. Together they own or guarantee some 5.2 trillion dollars in loans, or about 40 percent of the total value of home loans in the United States.

    Fred Dickson, analyst at DA Davidson & Co, said the tumble in the share prices reflected "renewed concerns about the availability of capital to restructure beleaguered financial institutions including Fannie Mae and Freddie Mac."

    He said Fannie Mae's sale this week of three billion dollars in notes marked "a record spread versus US Treasury notes indicating the reluctance of buyers to fund the troubled mortgage lender," which could put its AAA credit rating in jeopardy.

    The Wall Street Journal reported that among the options being considered was an explicit federal guarantee for the debt of the companies, which would be politically difficult. Another possibility would be an equity investment from the government.

    Meanwhile Peter Schiff at Euro Pacific Capital said the two giants are likely to need government bailouts in view of the "dubious quality of their mortgage portfolios."

    "Together both firms have less than 90 billion dollars in capital reserves to ensure losses on more than five trillion dollars in mortgage debt," he said.

    "Could anyone reasonably believe that a two percent reserve fund can cover all the losses that are likely to be seen? ... Clearly, Fannie and Freddie would have no ability to survive without a government bailout. This means that taxpayers will be on the hook for hundreds of billions of losses, perhaps even more than one trillion."