US lenders ‘face state takeover’

US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say.

Treasury Secretary Henry Paulson will outline government plans at a news conference at 1100 (1600 BST).

The move to shore up the shareholder-owned firms, which hold or guarantee half the US mortgage debt, would be the US’s largest ever financial bail-out.

In July, Congress approved a plan aimed

at offering them more liquidity.

This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.

‘Management told’

On Saturday, a senior politician, Barney Frank, chairman of the House Financial Services Committee, said US Treasury Secretary Henry Paulson had told him the government would use its powers to ensure the continued and stable functioning of the companies.

The Washington Post, quoting senior administration sources, said the firms would be put under a legal status known as “conservatorship” which would greatly reduce the value of the two companies’ common stock.

This is an event of profound significance for the global economy BBC Business Editor Robert Peston

Other securities – including company debt and preferred shares – would be guaranteed by the government, the paper added.

The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.

The Wall Street Journal said it would include changes in the top management.

There would also be quarterly infusions of cash to keep both firms afloat, the papers say. The total cost to taxpayers is not known but could amount to billions of dollars, they add.

The government was being forced to step in because it was dangerous for the US economy for doubts to persist about the two firms’ viability.

Struggling homeowners

HAVE YOUR SAY

Government control over larger portions of the economy can only end badly

TB, US

Send us your comments

The two contenders for the US presidency, Barack Obama and John McCain, have been briefed on the takeover by Mr Paulson.

“We’ve got to keep people in their homes,” said the Republican candidate, John McCain.

“There’s got to be restructuring, there’s got to be reorganisation, and there’s got to be some confidence that we’ve stopped this downward spiral,” he added, saying that the takeover of Fannie Mae and Freddie Mac must not benefit executives at the two companies.

The Democratic Party candidate, Barack Obama, said any action should be focused “on whether it will strengthen our economy and help struggling homeowners”.

“We must not allow government intervention to protect investors and speculators who relied on the government to reap massive profits,” he said, adding “we must protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac”.

Fragile

On Friday, America’s Mortgage Bankers Association reported that at the end of June, about four million homeowners with a mortgage – representing a record 9% – either were behind in their payments or faced repossession.

In the past year, the financial crisis has taken a heavy toll on both Fannie Mae and Freddie Mac.

The country’s two largest buyers and backers of mortgages lost a combined $3.1bn between April and June.

Both companies say they have the resources to weather the losses, but their shares have fallen sharply on fears that they could go bankrupt as borrowers default.

The rescue plan passed by Congress in July gave the US government the authority to buy shares and offer liquidity to companies to keep them afloat.

Many analysts believe their collapse would be a major shock to the already fragile global financial system.

Together, the two firms own or guarantee about $5.3 trillion worth of home loans – about half the outstanding mortgages in the US.

That is about 25 times as big as the obligations of Northern Rock – which was nationalised by the UK government earlier this year, and twice the size of the UK economy.

Reptile ‘first-time’ dad at 111

Tuatara are the last surviving reptiles of their kind

A rare 111-year-old New Zealand reptile is set to become a father, possibly for the first time.

Henry, a tuatara with prehistoric origins, had previously shown no interest in females during nearly 40 years in captivity, say keepers.

But his 80-year-old partner, Mildred, laid 12 eggs in mid-July, 11 of which are due to hatch in about six months.

Henry’s keepers have put his newfound vigour down to a recent operation to remove a tumour from his bottom.

Henry arrived at Southland Museum in the South Island city of Invercargill in 1970 and, his keepers say, soon became overweight and idle.

‘Raging hormones’

Museum curator Lindsay Hazley told AFP news agency: “He bit the tail off his previous female companion twice. But since the operation his hormones have been raging.”

It is not known whether Henry had ever mated in the wild.

Tuatara, which are only found in New Zealand, are sometimes referred to as “living fossils”.

He’s become a real Jack the Lad since he lost his virginity Lindsay Hazley, curator

They are the only surviving members of a family of species which walked the Earth with the dinosaurs more than 200m years ago.

Mr Hazley said he was confident Henry would continue to make the most of his new lease of life and was already showing interest in the other two females in his enclosure, Lucy and Juliet.

“He’s definitely up for it, he’s become a real Jack the Lad since he lost his virginity,” he said.

But he warned it was probably too early to start further prenatal celebrations.

“With these guys, foreplay might take years,” he said. “One has to be patient.”