WASHINGTON – The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental go
      designed to protect the mortgage market from the failure of the two
      companies, which together hold or guarantee half of the nation’s mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who questioned not to be named because the plot was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry
      Paulson and James Lockhart, the companies’ chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government’s plot to place the troubled companies
      into a conservatorship.

The news, first reported on The Wall Street Journal’s Web site, came after stock markets closed. In after-hours trading Fannie Mae’s shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac’s shares fell $1.06, or nearly 21 percent, to $4.04. Common stock in the companies will be worth small to nothing after the government’s actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie’s recent financial results: distress in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with small or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn’t expected Paulson to intervene unless the companies had distress issuing debt to fund their operations.

This summer, Congress passed a plot to provide unlimited  government loans to Fannie and Freddie and to buy stock in the two companies if needed.

Critics say the open-finished nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, but, argue the Bush administration had small choice
      but to support Fannie and Freddie, which together hold or guarantee $5
      trillion in mortgages – nearly half the nation’s total.

Representatives of Fannie and Freddie declined to comment on the government help plot.

Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments
     that hold billions of dollars of Fannie and Freddie debt to reassure them
     that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares
      outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae’s top post in December 2004 when chief executive Franklin Raines and chief
      financial officer Timothy Howard were swept out of office in an accounting
scandal. Syron was named Freddie Mac’s CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.

He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange and was president of the Federal Reserve Bank of Boston in the early 1990s.

Fannie Mae was made by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was
      established in 1970 to provide competition for Fannie.

A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

But the epic choice highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.
      

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AP Business Writers Martin Crutsinger and Jeannine Aversa
      contributed to this report.