The US government yesterday seized control of Fannie Mae and Freddie Mac in what could end up being one of the world's biggest financial bail-outs as it tried to prevent the mortgage giants suffering a catastrophic failure.

While the US government stopped short of using the word “nationalisation”, analysts said the moves amounted to de facto government control if not full ownership. Fannie and Freddie have $5,400bn in outstanding liabilities, mostly guarantees on mortgages.

“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” said Hank Paulson, US Treasury secretary. “Fannie Mae and Freddie Mac are critical to turning the corner on housing,” he added. He indicated that the US authorities will direct the companies to cut their fees to help bring down the cost of mortgages.