The US government announced Sunday a historical plan to take over the countries' two mortgage giants Fannie Mae and Freddie Mac.
This is the third time and also the biggest step this year that the US authorities have made a big policy announcement in efforts to recover the country's mortgage market and the economy as a whole.
Under the plan, Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, will be placed into a government-run conservatorship.
Though not all of the plan details have been revealed, it is expected that tens of billions of dollars from taxpayers will be poured to buy the two companies' securities.
It appears that investors who own the companies' common stock will be virtually wiped out. Preferred shareholders, who have priority over other shareholders, may also end up with little. Holders of debt, including many foreign central banks, are expected to receive government backing.
A moveto recover market,economy
The two companies' performance is crucial to the US mortgages sector as they own or guarantee almost half of the country's total 12 trillion US dollars in outstanding home mortgage debt.
Their combined losses of nearly 14 billion dollars in the last 12 months have aroused concerns over their sustainability in the business.
As Treasury Secretary Henry Paulson put it in an announcement, they "are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
"Our economy and our markets will not recover until the bulk of this housing correction is behind us," he said.
He hoped that the latest move on providing fresh capital to the two firms will eventually lead to lower mortgage rates, stimulate home buying demand and stabilize house prices that have plummeted.
"The clarity and certainty it will provide to the status of the two institutions should have a stabilizing effect on the markets, banking system and the mortgage industry," Federal Insurance Deposit Corp. Chairman Sheila C. Bair said in a statement.