From CNN:

Shares of mortgage finance giants Fannie Mae and Freddie Mac, suffering their worst day since a mid-July free fall, plunged Monday to their lowest points in nearly two decades.

Fannie (FNM, Fortune 500) fell 22% and Freddie (FRE, Fortune 500) lost 25% after a Barron’s report suggested that a government takeover of the troubled mortgage financiers is inevitable. Fannie closed down $1.76 to $6.15 a share, the stock’s lowest level since May 12, 1989, according to the Center for Research in Security Prices at the University of Chicago business school. Fannie ended down $1.46 to $4.39, its lowest point since Jan. 18, 1991.

Shares of both companies have plunged more than 80% since the start of the year.

In addition, the price of credit default swaps, financial instruments used to protect bondholders against default, jumped 11% at Fannie and 8% for Fannie in trading on Monday, according to tracking service CMA Datavision. That increase indicates that traders are pricing in a higher chance of a default on the firms’ subordinated debt in the next five years. A wire service report on the change in those credit default swaps pricing fed into the sell-off of Fannie and Freddie shares just before noon.

Monday’s stock plunges were ignited by an article in the financial newsweekly Barron’s. The article cited an unnamed Bush administration official as saying that officials don’t expect the two firms to be able to raise needed capital from private sector investors to cover future losses from rising defaults and foreclosures.

The article said that inability to raise capital would leave the government no choice but to have the federal government loan them money or buy their equity.

Both stocks fell to near two-decade lows on reports that both Fannie and Freddie will not be able to raise enough capital to survive without turning to the government bailout recently enacted as part of the Housing and Economic Recovery Act.