House Financial Services Committee chairman Barney Frank said the government-backed mortgage giants Fannie Mae and Freddie Mac should be abolished as they can not operate in their current forms.

Mr. Frank, who is a Democrat from Massachusetts, called for a new structure as an alternative to Fannie Mae and Freddie Mac.

Speaking on the topic, he said, "I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance."

Washington-based Fannie Mae and Virginia-based Freddie Mac supply funds to the mortgage industry by purchasing home-loans from lenders and selling them to investors.

Fannie Mae and Freddie Mac, the leading home lenders in the US, were taken over by the federal government in September 2008 after they almost collapsed. The government has already spent $112 billion in federal aid to keep Fannie Mae and Freddie Mac afloat.

In the after-hours trading, shares in Fannie Mae slipped 7.5 per cent to close at 99 cents, while shares in Freddie Mac shed 10.7 per cent to close at $1.17.