Paulson Prepares To Prop Up Fannie, Freddie; Gov't May Lead Takeover (Dawn Kopecki & John Brinsley)

Sept. 5 (Bloomberg) -- Treasury Secretary Henry Paulson met with regulators and executives of Fannie Mae and Freddi today as the Bush administration prepared to announce a plan to prop up the firms hit by $14.9 billion in losses the past year.

  The plan is likely to involve putting at least one of the companies under government control in a conservatorship, according to a person briefed on the discussions. The move may also result in changes in the leadership of Fannie and Freddie, said the person who spoke on condition of anonymity.

  Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.

  The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion U.S. mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Federal Reserve provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

  Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Fannie Mae Chief Executive Officer Daniel Mudd, Freddie Mac CEO Richard Syron and Federal Housing Finance Agency director James Lockhart in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team tomorrow and has contacted Republican contender John McCain's staff about its intentions.

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