The New York Times reports that the government in considering placing Fannie Mae (FNM) and Freddie Mac (FRE) into conservatorship "if their problems worsen." That might happen--both stocks are rated as "D - Sell" in PortfolioGrader Pro.

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee -- which could be staggering -- would be paid by taxpayers.

Both stocks are down by over 40% today.