The US government is considering a plan to take over mortgage giants Fannie Mae and Freddie Mac if their finance problems deepen, US media reported Friday.
Citing people briefed on the plan, the New York Times said the administration of President George W. Bush is weighing the possibility of having to place one or both companies in a conservatorship to protect them from the snowballing collapse of the US mortgage finance market.
"The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation," the Times reported.
However, it said that the two companies, by far the largest home loan financers in the United States with 5.2 trillion in mortgages or mortgage guarantees on their books, faced weakening balance sheets as their stocks plummet and their borrowing costs sour in the face of doubts about their health.
The Times said an alternative intervention strategy, having the government guarantee the five trillion dollars of debt the two companies own or themselves guarantee is seen as less attractive, because it would have the effect of doubling US public debt.
The Wall Street Journal, which first reported Thursday that the Bush administration was weighing strategies to keep the firms afloat, said Friday that pressure was on them now to raise fresh capital.
Under a 1992 law, if either is seen as being severely undercapitalized, it would have to be placed into government conservatorship.
"Such a move would be a drastic step and its path is uncertain, in part because few know what specific financial situation would be a trigger," the Journal said.
But Treasury Secretary Henry Paulson told a congressional panel Thursday that the two government chartered, shareholder-owned finance firms are "adequately capitalized."
Speaking to the House Committee on Financial Services, Paulson said Fannie Mae and Freddie Mac were "working through this challenging period" of the housing slump, which has seen billions of dollars' worth of mortgages and mortgage-backed securities collapse in value.
On Thursday, Freddie Mac shares plunged 22 percent to eight dollars, and were down over 40 percent this week and 75 percent this year.
Fannie Mae sank 14 percent to 13.20 dollars, down 26 percent in the week and 64 percent for the year.
