Takeover of housing giants 'critical', says Bush

US president George Bush said the historic federal government takeover of mortgage giants Fannie Mae and Freddie Mac was needed to keep them from failing, a risk he called “unacceptable” for an economy battered by housing and credit crises.

“Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing,” Mr Bush said in a statement last night.

“Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth.”

The Bush administration announced it was taking control of the two institutions to avert the potential for major financial turmoil.

The companies have lost $14bn (€9.7bn) in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie. The executives and board of directors of both institutions are being replaced.

In a statement, the president called the moves temporary until the appropriate role for the companies can be determined.

He said they must be reformed so that “they do not pose similar risks to our economy or the financial system again.”

Treasury Secretary Henry Paulson said the actions were being taken because the failure of either of the mortgage companies “would cause great turmoil in our financial markets here at home and around the globe”.

The huge potential liabilities facing each company could cost taxpayers tens of billions of dollars. But Paulson stressed that the financial impact if the two companies had been allowed to fail would be far more serious.

Mr Bush said the federal regulator for Fannie Mae and Freddie Mac determined they could no longer operate safely and conduct their public mission.

He said that posed “an unacceptable risk to the broader financial system and our economy”.