The corporate logo for Freddie Mac is seen at its headquarters building in McLean, Virginia, July 23, 2008. [Agencies]

The US government plans to takeover Fannie Mae and Freddie Mac and all shareholders of the two mortgage giants will take a hit, an influential lawmaker said on Saturday.

The move to take control of the two companies, which may be announced Sunday, could amount to the largest financial bailout in the United States' history, and is a bid to ward off further damage to the housing market there which is in its deepest downturn since the Great Depression.

"I think all shareholders will be disadvantaged," said Barney Frank, chairman of the US House of Representatives Financial Services Committee.

"The government will act as the new management," implying the chief executives would be ousted, according to Frank, who spoke to US Treasury Secretary Paulson on Friday about the plan to put the companies into federal conservatorship to protect the interest of all parties.

An industry source said the two companies were sent a letter by their regulator, the Federal Housing Finance Agency, detailing shortcomings at the companies and explaining why the federal government was taking control.

The source said the letter suggested the companies, which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, should agree to the arrangement in order to avoid the more onerous step of being placed in a receivership in the interests of debtholders.

In a separate interview with the Washington Post, Frank said the government was expected to control the companies for at least a year as it considers whether they should remain government-run, or be restructured.

Paulson, Federal Reserve Chairman Ben Bernanke, and the director of the companies' regulator, James Lockhart, met with the chief executives of the two companies on Friday to detail the plan.

Other sources said the board's of Fannie Mae and Freddie Mac were briefed in meetings or conference calls on Saturday. Fannie Mae argued it was in a stronger capital position than Freddie Mac and had fulfilled a promise to raise capital, but there was no indication that argument was gaining traction.

The US Treasury, the Federal Reserve and Freddie Mac declined to comment. Fannie Mae did not return calls seeking comment.

The planned intervention reflects concerns among US officials that financial markets had begun to lose confidence in the companies, after they suffered combined losses of nearly $14 billion in the last four quarters.

In this May 9, 2008 file photo, a foreclosure sign stands outside an existing home on the market in Denver. [Agencies]

The stocks of the two companies have fallen more than 90 percent in the past year and in recent months foreign investors have pared their holdings of the companies' securities.

In an emergency move in July, the US Congress gave Treasury the authority to extend an undetermined amount of credit to the companies or take a stake