WASHINGTON — The Federal Reserve and the Treasury announced steps Sunday to shore up mortgage giants Fannie Mae and Freddie Mac, whose shares have plunged as losses from their mortgage holdings threatened their financial survival.

The steps are also intended to send a signal to investors worldwide that the government is prepared to take all necessary steps to prevent the credit market troubles that started last year from engulfing financial markets and further weakening the economy and housing markets.

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies "should such lending prove necessary." They would pay 2.25 percent for any borrowed funds — the same rate given to commercial banks and big Wall Street firms. The Fed said this should help their ability to "promote the availability of home mortgage credit during a period of stress in financial markets."

Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its $2.25 billion line of credit to each company should they need to tap it and to make an equity investment in the companies if needed.

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," he said. "Their support for the housing market is particularly important as we work through the current housing correction."

Treasury's plan also seeks a "consultative role" for the Fed in any new regulatory framework decided by Congress for Fannie and Freddie. The Fed's role would be to weigh in on setting capital requirements for the companies.

The White House, in a statement, said President Bush directed Paulson to "immediately work with Congress" to get the plan enacted. It said it believed that the plan outlined by Paulson "will help add stability during this period."

Investors may not be as sanguine, however, according to Chris Johnson, an investment manager and president of Johnson Research Group in Cleveland. Stocks of financial institutions "are going to get clobbered," he said. "It is a situation where regulators and the government are trying to play catch-up, and that means everything is not discounted in the stock prices yet."

Johnson expects that shares of investment banks and regional banks could fall even lower as investors react to this weekend's developments.

Fannie Mae and Freddie Mac either hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States.

The announcement marked the latest move by the government to bolster confidence in the mortgage companies. A critical test of confidence will come this morning when Freddie Mac is slated to auction a combined $3 billion in three- and six-month securities.

Fannie was created by the government in 1938 to provide more Americans the chance to own a home by giving financial institutions an outlet to sell mortgages that they originated, freeing more cash to make more home loans. It moved from government to public ownership in 1968; Freddie was started two years later.

Sunday's announcements are likely to raise anew criticism that the government should have moved sooner to rein in the companies, especially since investors assumed that they would be bailed out if they got into trouble. The government denied it, but what was seen by investors as an implicit guarantee of support allowed Fannie and Freddie to borrow at rates only slightly higher than the Treasury and lower than what their banking competitors had to pay.

"This really blows away the notion of an implicit guarantee," banking consultant Bert Ely said of Treasury's plan to ask Congress to allow it to make equity investments. "It suggests a greater concern about how these companies are doing. It says the problems are deeper. It gets to the solvency of the companies, not just the liquidity."

Paulson's goal is to get his plan attached to a sweeping housing rescue package. The Senate and House have each passed bills, and a final package has to be hammered out. Centerpiece of the legislation is to help strapped homeowners avoid foreclosure, but it also contains provisions to revamp oversight of Fannie Mae and Freddie Mac.

Senate Majority Leader Harry Reid, D-Nev., said, "Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institutions."

Democratic presidential contender Barack Obama, speaking with reporters before the plan was announced, said he favored congressional action to shore up the housing market, as well as legislative consultation about any taxpayer dollars used to support the mortgage companies.

Republican rival John McCain believes that the measures announced Sunday "are consistent with the goal of providing support for a path through the current duress toward steps that include regulatory reform, market discipline and mission focus," said Douglas Holtz-Eakin, senior policy adviser.

Officials from Treasury, the Fed and other regulators worked in close consultation over the weekend after growing investor fears about the companies' finances sent their shares and the overall market plummeting last week.

Shares of Fannie Mae plunged 45 percent last week and are down 74 percent since the beginning of the year. Freddie Mac shares fell 47 percent last week and have fallen 77 percent so far this year.

A senior Treasury official said any increase in the line of credit — now at $2.25 billion for each company— would be at the Treasury secretary's discretion. The same would apply to any equity investment made by the government.

The official, who spoke on condition of anonymity, also sought to send a calming message about Fannie's and Freddie's financial shape, saying: "There's been no deterioration of the situation since Friday."

The Fed's offer of funds is viewed as a temporary backstop until Treasury can get its plan in place. The collateral they would pledge — Treasury securities and federal agency securities — is more narrow than the collateral commercial banks and Wall Street firms must pledge for emergency lending privileges.

Freddie Mac Chairman Richard Syron said Sunday that preliminary second-quarter results show that his company had "a substantial capital cushion" above the 20 percent minimum surplus it is required to maintain.

Fannie Mae President and CEO Daniel Mudd said he believes that the steps could send a calming message.

— AP business writers Stephen Bernard and Joe Bel Bruno in New York contributed to this report.