The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae and Freddie Mac, in what could be the biggest federal bailout in U.S. history in a bid to support the U.S. housing market and ward off more global financial market turbulence, Reuters reported. "Our economy and our markets will not recover until the bulk of this housing correction is behind us," U.S. Treasury Secretary Henry Paulson said at a news conference. "Fannie Mae and Freddie Mac are critical to turning the corner on housing." The two companies, publicly traded but also serving a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in any claims. Their top executives were ousted. Freddie Mac chief executive Richard Syron and Fannie Mae's CEO, Daniel Mudd, were replaced by David Moffett, a former top official at US Bancorp and Herb Allison, a former top official at both Merrill Lynch and pension fund TIAA-CREF. In addition, the U.S. Treasury will immediately take $1 billion equity stakes in each company that could grow to be as large as $100 billion each and which would be senior to both existing preferred and common shares. The senior preferred stock in each GSE will carry warrants that will give the government an ownership stake of 79.9 percent. The Treasury will initially purchase an upfront $1 billion worth of senior preferred stock in each GSE, with a 10 percent coupon, quarterly dividend payments, and warrants representing an ownership stake of 79.9 percent in each GSE going forward, and a quarterly fee starting in 2010.
