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U.S. Seizes Control Of Mortgage Giants

Sources familiar with the situation said the officials accepted phone calls from stakeholders who wanted to share financial analysis, offer ideas and discuss the possible ramifications of potential solutions.

Treasury officials also have held informal conversations with leading buyers of Fannie and Freddie debt -- including the central banks of China, South Korea, India and Taiwan -- to reassure them that the mortgage companies remained viable and would receive U.S. government support. As recently as two weeks ago, according to a source close to the talks with China's central bank, Treasury officials told leaders of that central bank that a cash infusion in the companies was in the works.

Leaders of the Chinese central bank said in those talks that they expected the U.S. government to "do whatever is necessary" to protect the creditworthiness of those investments, the source said.

Treasury officials eventually concluded that the companies' capital position was even worse than they had thought and that government cash would be needed.

On Aug. 28, Paulson discussed the likely necessity of such action in an Oval Office meeting with President Bush, Chief of Staff Joshua Bolten and top White House economic officials, and received the president's blessing to continue developing such plans.

Over Labor Day weekend, Paulson assembled a group that included James B. Lockhart III, the head of the Federal Housing Finance Agency, Fed Chairman Ben S. Bernanke, investment bankers and outside lawyers to go over their options. In three days of intensive work, they formulated the plan.

They laid it out to Daniel H. Mudd, the chief executive of Fannie Mae, and Richard Syron, his Freddie Mac counterpart, on Friday afternoon. Freddie Mac leaders quickly realized they had little choice but to accept, while the Fannie Mae board considered fighting the takeover, until they too concluded Saturday that it would be futile.

Staff writers David Cho, Binyamin Appelbaum, Anthony Faiola, Lori Montgomery and David S. Hilzenrath in Washington, Heather Landy in New York and correspondent Ariana Eunjung Cha in Shanghai contributed to this report.

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