WASHINGTON — Treasury Secretary Henry M. Paulson Jr. called in top executives of Fannie Mae and Freddie Mac late Friday to hammer out details of a rescue plan for the troubled mortgage giants that could go so far as a full government takeover, according to people familiar with the effort.
Paulson, together with Federal Reserve Chairman Ben S. Bernanke, was expected to meet through the weekend with Fannie Mae Chief Executive Daniel Mudd, Freddie Mac CEO Richard Syron and federal regulators to unveil a plan by the time Asian financial markets open Monday morning.
Among the key issues: whether the two executives and perhaps their boards of directors would step aside in return for federal aid.
Doubts about the stability of Fannie and Freddie, which own or guarantee more than $5 trillion worth of mortgages -- about half of all U.S. home loans -- have dogged investors since the U.S. housing finance market began to unravel a year ago.
The government-chartered but shareholder-owned companies play such a central role in the U.S. financial system that any new worries about their functioning could send damaging ripples around the world and worsen the downward spiral of house prices and foreclosures here at home.
Treasury action could potentially help home buyers and sellers by keeping mortgage interest rates lower than they might be if the firms were to run out of capital and stop buying and guaranteeing mortgages.
Paulson sought to allay such fears in July by winning congressional authority to lend the firms taxpayer money, buy their stock or even force them into conservatorship, a sort of bankruptcy.
The Treasury secretary and other top officials hoped that attaining that authority would in itself be enough to steady the companies and that Washington would not be forced to use its new powers.
Any sort of Treasury intervention aimed at Fannie and Freddie would represent a huge expansion of the safety net that a deeply reluctant Bush administration has slipped under the financial system since the beginning of the crisis.
Fannie and Freddie's nose dive marks a spectacular fall from grace for two of Washington's most powerful institutions. Not only were the pair financial behemoths, but they were also among the capital's most aggressive lobbyists, convincing lawmakers and other officials that they were essential to the American dream of homeownership.
