U.S. to take control of mortgage giants: reports

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(Reuters)

WASHINGTON (Reuters) - The U.S. government plans to put troubled mortgage finance companies Fannie Mae and Freddie Mac under federal control, the New York Times and Washington Post newspapers reported on Friday.

The Wall Street Journal reported earlier on Friday that the U.S. Treasury Department is close to finalizing a plan to buttress the two companies that includes changes to their senior management. The plan could be announced as early as this weekend, the paper said.

The firms would be placed in a legal state known as conservatorship, the Post said, citing sources familiar with the conversations.

The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Post said.

Senior Bush administration and Federal Reserve officials called in top executives of Fannie Mae and Freddie Mac on Friday and told them that the government was preparing to place the two companies under federal control, officials and company executives told the New York Times.

The executives were told they and their boards would be replaced and shareholders would be virtually wiped out, but the companies would be able to continue functioning with the government generally standing behind their debt, The Times said.

It is not possible to calculate the cost of any bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation's history, the paper said.

The Journal, citing people familiar with the matter, said the plan was expected to involve the creative use of authority the Treasury won in late July to pump capital into the two government-sponsored enterprises if it believed it was necessary.

Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies' losses warrant, sources told the Post. This would be an attempt to minimize the initial cost of the rescue, the paper said.