LONDON (Reuters) - The housing crisis in the United States is fast spilling into a banking and financial debacle that could destabilize the world economy and put mounting pressure on the Bush administration to act.

President George W. Bush delivers remarks at the Max M. Fisher National Republican Award Dinner at Laurel Manor in Livonia, Michigan June 25, 2008. REUTERS/Jim Young

So far the White House and U.S. Treasury have signaled they plan no dramatic steps to shore up the U.S. housing agencies, Fannie Mae and Freddie Mac, whose financing underpins about half of all U.S. mortgages.

But a savaging of their stock on Friday over worries they are short of capital convulsed Wall Street and wiped out about 50 percent of their equity value. Federal regulators then seized mortgage lender IndyMac Bancorp Inc. in the third largest bank failure in U.S. history.

These twin events highlighted the fragility of housing finance in the United States, still reeling after a year of subprime mortgage losses. It also pinpoints how easily fear can spread in financial markets that already are in bear territory.

A severe U.S. market downturn and a sharp economic recession cannot leave a globalize economy unscathed.

To stop the rot, investment bank and housing analysts in research notes this weekend said the federal government may well have to take more aggressive action to bolster Fannie and Freddie -- if only to keep credit lines in a weakened U.S. economy open.

“We see little sign of a bottoming in the financial crisis, especially as applied to the fixed income market,” said Deutsche Bank.

CREDIT CHANNELS STOPPERED

Already, credit for riskier borrowers has closed down. Since late 2007 another critical credit channel, from investment banks to corporate borrowers, has been severely damaged as banks repair their balance sheets damaged by subprime losses.

Now a third credit channel, from regional and small U.S. banks, is under pressure as these banks also begin raising capital and recognize losses. IndyMac exemplifies this problem.

A fourth credit channel, capital raising on Wall Street by corporations, has narrowed sharply. Major U.S. and European stock indexes are down over 20 percent over the past year.

Add to this the prospect of Fannie and Freddie reducing their credit availability, and it looks grim.

“They are caught in a vicious cycle,” said Deutsche Bank.

Why are Fannie and Freddie so important? They have taken on a bigger and bigger role in insuring and buying up mortgages in recent years, thus providing a key lubricant to the U.S. housing market, especially when other sources of financing seized up.

But a selloff in their stock, down 90 percent since last August, combined with falling value of mortgage debt held in their portfolios, catches Fannie and Freddie in a bind. It weakens their balance sheets when they want to take on new business to keep the U.S. housing machine going.

Weak balance sheets mean they must raise more capital -- Lehman Bros has estimated as much as $75 billion due to pending accounting changes. But falling equity markets and rising debt prices makes that ever more costly. The problem cascades.

Goldman Sachs said this spiral creates a serious problem for the U.S. economy, and hence its government.

“Should the market turmoil continue, the administration is likely to continue escalating its signals of support, first with verbal measures and proceeding to outright credit support,” said Jan Hatzius at Goldman Sachs.

IT’S THE ECONOMY, STUPID

Here’s why: the key vulnerability to the U.S. economy is its inability to create credit.

Given that Fannie and Freddie accounted for just under 20 percent of credit generated in the first quarter of this year, they could spell the difference between growth and recession, Hatzius said in a research note.

Now for the numbers.

Borrowing by U.S. households and corporations in the first quarter was $24.3 trillion. Roughly half of that, however, came from financial institutions and lenders that now are caught up in massive deleveraging. Going forward, that lending will likely stagnate or shrink, meaning zero contribution to or a drag on growth.

“This means that the other half -- of which the $5.3 trillion Fannie/Freddie book of business is the biggest component -- needs to grow rapidly to generate at least some credit growth over time,” said Hatzius.

“In this environment, the federal government will not only need to stand behind the GSEs (government-sponsored enterprises) but will need to encourage them to continue growing their book of business.”

Speculation is wide over what measures the Bush administration might take -- a clear government guarantee to their debt; lending them taxpayer money; an outright restructuring of the housing finance agencies. Unless they can raise capital to strengthen their balance sheets, however, few analysts doubted that Fannie and Freddie would need help.

“They are a train wreck waiting to happen,” said Westwood Capital.