WASHINGTON - THE US government was preparing a massive intervention on Sunday in Fannie Mae and Freddie Mac in an effort to shore up the two ailing mortgage finance firms that underpin trillions of dollars in loans and are a linchpin the financial system.

Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart scheduled a news conference at 11 am (1500 GMT) where details of the plan were to be announced.

Senator Christopher Dodd said he was 'was advised of the administration's intent to use its new authority to act' on the government-sponsored enterprises (GSEs) which are federally chartered but shareholder owned.

According to media reports, the Treasury is not likely to immediately inject large amounts of capital into the Fannie and Freddie, but will stand ready to bolster the firms as their losses mount.

Some reports said the move could place the two in government conservatorship, the equivalent of bankruptcy reorganisation, The takeover by statute would only be temporary, but is expected to mean fundamental changes in the management of both firms.

For months the US government has sought to shore up the two government-chartered, shareholder-owned firms that have a hand in some 50 percent of all mortgages in the United States.

Fannie Mae and Freddie Mac have been whipsawed by the meltdown in the housing and housing finance markets in the past year, losing some 90 percent of their value on fears of losses from mortgage defaults.

The two have racked up some 14 billion dollars (S$20.1 billion) in losses over the past two years as US housing prices sunk after a long run-up and millions of homeowners defaulted or went into arrears on mortgages.

According to the Wall Street Journal, the move will result in the their chief executives being dismissed and dividends on their stock suspended.

Concern about the two firms has unsettled investors because together they own or guarantee some 5.2 trillion dollars in loans, or about 40 per cent of the total value of home loans in the United States.

President George W. Bush sought to restore confidence in Fannie and Freddie as well as the wider housing market by approving on July 30 a sweeping housing rescue plan - the Housing and Economic Recovery Act of 2008 - designed to help 400,000 homeowners avert foreclosure.

The bill empowered the Treasury to extend credit to Fannie Mae and Freddie Mac if Treasury Secretary Henry Paulson deems such a move necessary.

However, analysts said the bill and other moves by the Treasury which sought to shore up the two mortgage companies raised more fears in investors that a more sweeping bailout was necessary, especially as mortgage defaults across the country continued to rise. -- AFP