US government acts to save the housing sector

08/09/2008 08:15:26

The US government has taken control of the country's two biggest mortgage firms in an aggressive move to help the distressed housing market and economy.

Fannie Mae and Freddie Mac own or guarantee almost half of the country's $US12 trillion in outstanding home mortgage debt.

The two firms have lost about $14b over the past year.

Officials are concerned mounting losses are sapping their vitality and the move is a bid to ward off further damage to a housing market in its deepest downturn since the Great Depression.

The Treasury Secretary, Henry Paulson says the companies will no longer be managed to maximise common shareholder returns, a strategy which encourages risk-taking.

"These two institutions are unique, they operate solely in the mortgage market and are therefore more exposed than other financial institutions to the housing correction," he said.

"We examined all options available and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection."

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