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US government to seize Fannie Mae, Freddie Mac

Business Materials 6 September 2008 08:25 (UTC +04:00)

The US government was preparing to take over the twin mortgage finance giants Fannie Mae and Freddie Mac, dismiss their top executives and prop up the companies with government funds, media reports said late Friday.

The Washington Post and New York Times quoted unnamed officials and company executives who have been briefed on the plan as the sources for their online stories.

Treasury Secretary Henry Paulson on Friday met with executives of the two companies and regulators along with Federal Reserve chairman Ben Bernanke and Federal Housing Finance Agency (FHFA) director James Lockhart in Washington, Bloomberg financial news agency reported.

The chief executives of the two companies were summoned and told that they and their boards would be replaced, the Times reported.

The two companies have suffered 14.9 billion dollars in losses from the widening mortgage foreclosure crisis in the US that has rippled outward to foreign investors. The central banks of many countries, including those in Asia, hold considerable stock in Fannie and Freddie, Bloomberg reported.

Bloomberg reported that catered food was scheduled for delivery through the weekend to the FHFA, indicating intense talks were scheduled. Congressional leaders were reported to be on standby for briefings over the weekend, with a possible plan to be released to the public by Saturday or Sunday.

The two companies would be placed in a conservatorship, the Times and Post reported. Such a move would deal another blow to US finance markets as the country struggles with soaring mortgage foreclosures that have undermined the US economy.

Shareholders in the two companies would lose most of their investment, with taxpayers carrying any remaining guaranteed worth, the newspapers said. But the Post reported that while common stock could be diluted in value, company debt and preferred shares could be protected by the government.

In August, Fannie Mae reported a second quarter loss of 2.3 billion dollars, marking the fourth straight quarter of losses for the US bank. The company recorded a 1.86 dollar gain in the same period a year ago, dpa reported.

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