NEW YORK - Billionaire investor Warren Buffett said Friday he believes mortgage giants Fannie Mae and Freddie Mac are too big to fail, but shareholder equity in those companies could be wiped out.

During a live appearance on CNBC, Buffett predicted the federal government eventually will have to step in to help because the troubles of Fannie Mae and Freddie Mac seem to be growing and feeding on themselves.

"They're looking for help, obviously. And the scale of help is such that I don't think it can come from the private sector," Buffett said.

The pair hold about half of outstanding U.S. mortgage debt and are the largest source of funding for home loans. But defaults in their portfolios are mounting. Losses between April and June for the two totaled $3.1 billion, and investors fear they will continue to grow.

Investors appear to believe existing common stockholders would get nothing if there is a government bailout. What remains unclear is whether investors in preferred shares — a type of investment that incorporates elements of both stocks and bonds — will also be wiped out.

Fannie and Freddie's shares have lost more than 90 percent of their value this year.

Shares of both companies surged almost 5 percent in early morning trading. Fannie Mae rose 24 cents to $5.09, and Freddie Mac rose 15 cents to $3.31.

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AP Business Writer Josh Funk in Omaha, Neb., contributed to this report.

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