Federal Government Takes Over Fannie Mae and Freddie Mac

US Treasury Secretary Henry Paulson announced today that the federal government was taking control of Fannie Mae (FNM) and Freddie Mac (FRE).  The Associated Press reports that the top executives of both companies have already been replaced, with Herb Allison, a former vice chairman of Merrill Lynch, now heading up head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, picked to head Freddie Mac.  Both companies have been placed into a government conservatorship that will be run by the Federal Housing Finance Agency.

The New York Times reports that shareholders of both companies may suffer.  The companies are expected to stop paying any dividends on their common shares, and any new capital provided by the Treasury Department will have financial priority over the existing preferred and common stock.   The two companies had nearly $36 billion in preferred shares outstanding as of June 30.

Read the AP article

Read The NY Times article