The US government has taken control of mortgage giants Fannie Mae and Freddie Mac this afternoon, placing them in a government “conservatorship” in a bid to stave off a potentially catastrophic collapse.

Treasury Secretary Henry Paulson announced a four-part plan that allows the US regulator to seize control of the government-chartered, shareholder-owned firms underpinning trillions of dollars of home loans.

The plan “is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition” of the two government-sponsored enterprises, or GSEs.

Executives of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Mr Paulson said the actions were being taken because “Fannie Mae and Freddie Mac 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.

“Because the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking,” Paulson said in a statement.

More details to follow...

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