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WASHINGTON: The US government is planning to put under strict federal control troubled mortgage giants Fannie Mae and Freddie Mac, fire their top executives and use federal funds to bail them out, US media reported on their websites.
Fannie Mae and Freddie Mac, government-chartered, shareholder-owned firms that provide liquidity to the housing market, have been whipsawed by the financial meltdown in the past year, losing some 90 percent of their value on fears of losses from mortgage defaults.
A law enacted in July gives the US government the authority to buy shares or offer liquidity to the companies to keep them afloat, averting what some fear could be a major shock to an already fragile global financial system.
The Washington Post said the plan calls for placing the firms in a legal state known as conservatorship.
That means the value of the company's common stock would be diminished but not liquidated while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the report said.
The government also plans to make quarterly infusions as the companies' losses warrant, The Post said citing unnamed sources.
The New York Times, for its part, reported that senior officials from the administration of President George W. Bush and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac and informed them of the plan.
The Times said it was not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars.
- AFP/so
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