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I know this is short for now, I will update as more information comes in,  but I just received an email  news alert from the NY Times:  

Breaking News Alert
The New York Times
Friday, September 5, 2008 -- 9:03 PM ET

Government Preparing Plan to Seize Fannie Mae and Freddie Mac, Officials Say

Senior officials from the Bush administration and the Federal Reserve informed top executives of Fannie Mae and Freddie Mac, the mortgage-finance giants, that the government is preparing a plan to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

More after the fold

This a huge deal.  These two entities are the largest holders of government backed mortgages in the nation.  
The two companies own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt.This move has been rumored for weeks and weeks.  It is also very typical that is announced on a Friday night.  The Fed will work straight through the weekend to set things up so Monday morning's market openings are at least reasonably confident of what they've done.

Update 1: A little more info:

On the CNBC website, they reported earlier today that the Treasury and the Fed had put such plans in place.  

Also,  a note, this is NOT some sort of conspiratorial Friday night news dump.  The Fed's primary mission is to keep the stock markets stable.   If this was announced in the middle of the week, the markets would go nuts.  By doing it now, as I said above, they work through the weekend to put everything in place to keep the markets calm come Monday morning.   The same was done for Bear Stearns a few months ago...on a Friday.

Overall, this move is not a surprise to those who pay attention to the market.

Update 2: Here's a lot more from the Times:

Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage-finance giants, that the government is preparing a plan to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

The plan, effectively a government bailout, was outlined in separate meetings that the chief executives were summoned to attend on Friday at the office of the companies’ new regulator. The executives were told that under the plan, they and their boards would be replaced, and their shareholders virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in United States history.

  (Emphasis is mine)

I wonder how they plan to finance this?  More deficit spending?  Special bonds like the S&L mess- which of course is still deficit spending.

As to what happens to the shares that mutual funds and other own... um, they're fucked, at least for now.

Under a conservatorship, most if not all of the remaining value of the common and preferred shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.

The officials said that the executives were told that the government had been planning to announce the decision as early as Sunday, before the Asian markets reopen.

Not that there is much left to lose:

After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago.

Here's a link to the entire article:  U.S. Plans to Seize Fannie and Freddie

Originally posted to oxfdblue on Fri Sep 05, 2008 at 06:14 PM PDT.

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