WASHINGTON: The U.S. government took over mortgage giants Fannie Mae and Freddie Mac on Sunday, placing them in a "conservatorship" to help avert a financial system meltdown from the housing crisis.

Treasury Secretary Henry Paulson announced the US regulator was seizing control of the government-chartered, shareholder-owned firms underpinning trillions of dollars of home loans.

The move constitutes a massive government intervention in the financial system in an effort to contain the damage from the worst housing slump in decades, which has rippled through the banking system and led to multibillion-dollar losses for Fannie and Freddie.

The plan "is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition" of the two government-sponsored enterprises, or GSEs, Paulson said.

"Because the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking," Paulson said in a statement.

New chief executives have been installed, as part of the action that Paulson said was needed in view of “the inherent conflict and flawed business model embedded in the GSE structure Departing CEOs Dan Mudd of Fannie Mae and Dick Syron of Freddie Mac "have agreed to stay on for a period to help with the transition," Paulson said.

Federal Reserve chairman Ben Bernanke, part of frantic several days of talks to come up with the rescue plan, lauded the effort. "These necessary steps will help to strengthen the US housing market and promote stability in our financial markets," Bernanke said in a statement.

One key element in the plan enables the Treasury and Federal Housing Finance Agency to purchase a new class of preferred stock in the firms that "will ensure that each company maintains a positive net worth," Paulson said.