Worries are growing that the nation's two biggest buyers of mortgages, Fannie Mae and Freddie Mac—the backbone of the housing industry—will need to raise new capital quickly or face a takeover by the government.

Shares of both companies extended a steep slide today.

Treasury Secretary Hank Paulson sought to pour cold water on the notion of an imminent nationalization of Fannie and Freddie, saying that "today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission."

The White House sought to pass the buck to Congress, saying that the most important thing was for the Senate to pass a housing bill that would overhaul the oversight of the two mortgage giants.

But Congress is part of the problem, Yves Smith says on the Naked Capitalism blog. The reaction in the market, Smith says, "is pushback, pure and simple, against efforts to finesse a Federal bailout of housing by pushing as much as possible on to Fannie and Freddie, rather than set up new programs so the costs would be explicit."

Shares of Fannie Mae were down 22 percent today while Freddie Mac shares erased steep losses to end the day down just 3 percent.

And it's clear that some action will be needed soon. Earlier this week, the former president of the Federal Reserve Bank of St. Louis, William Poole, said that both Fannie and Freddie are technically insolvent.

Fannie and Freddie are the foundation of the housing market. By buying mortgages, they have lowered the costs of borrowing. Any further retrenchment by them would make mortgages more costly and prolong a deep housing slump.

The two also have some $5 trillion in mortgage-related debt—about half of the mortgage debt market.

Absorbing that debt, Dwight Cass on Breakingviews.com notes, would push the government's total liabilities to the level of the U.S. gross domestic product.

Still, he says, nationalization "appears the least-bad scenario."

"If the government does take over the G.S.E.'s, it should recapitalize and privatize them again as quickly as possible."