Bloomberg.comThe steps would bring the U.S. closer to giving an...

Bloomberg.com

The steps would bring the U.S. closer to giving an explicit guarantee for the debt sold by the shareholder-owned, federally chartered companies. That reflects a need for the government to bail out an economy that's been rocked by the worst housing recession in 25 years, the credit crisis, and soaring energy costs.

``They appear to be crossing the Rubicon,'' Sean Egan, president of Egan-Jones Ratings Co., a credit-rating company based in Haverford, Pennsylvania, said, referring to Caesar's invasion of Rome to set up a dictatorship.

The announcements followed weekend talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week.

`Explicit' Guarantee

Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing.

Fannie Mae gained 13.7 percent to the equivalent of $11.65 at 10:13 a.m. in Frankfurt trading, and Freddie Mac advanced 9.5 percent to $8.49. Fannie Mae tumbled 45 percent in New York Stock Exchange composite trading last week and Freddie Mac lost 47 percent of its value.