The U.S. government has taken control of mortgage giants Fannie Mae and Freddie Mac, and their top executives have been removed, Treasury Secretary Henry Paulson said. The intervention comes after the companies lost billions in the housing market turmoil, with no sign that things are getting better.
In a news conference Sunday, Paulson said that the two companies will be put into conservatorship, similar to a condition of Chapter 11 bankruptcy. The Federal Housing Finance Agency, which regulates the two companies, will manage Fannie Mae and Freddie Mac on a temporary basis.
"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Paulson said.
Fannie Mae and Freddie Mac were created by Congress in an effort to free up money for the mortgage market.
While they were eventually privatized, the two have always operated to some extent with the implied guarantee of the federal government backing them up. Together, they are tied to roughly half of the nation's $12 trillion mortgage market.
Stockholders in the two companies have already seen the value of their shares fall by more than 80 percent this year.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
With reporting by NPR's Jack Speer and The Associated Press.