Mumbai: The US government is preparing to take over control of the country's two largest mortgage finance companies, Fannie Mae and Freddie Mac, as other measures to stabilise the two have failed, the New York Times reported citing company officials.

The government will dismiss the boards of the two mortgage companies and  appoint a new receiver in their place ahead of launching the revival plan, the report said.

The receiver, meanwhile, is reported to have summoned chief executives of the two companies to the regulator's office and told that they and their boards would be replaced.

While under the government's revival package, the two companies would be placed under the administrative control of a government-appointed receiver, the report said.

Shareholders in the two companies would lose most of their investment, with taxpayers carrying any remaining guaranteed worth.

Fannie Mae had, in August, reported a second quarter loss of $2.3 billion, the fourth straight loss in as many quarters. The company recorded a $1.86 billion gain in the same period a year ago.

A government takeover of Fannie Mae and Freddie Mac, which together own or guarantee nearly half of all mortgages outstanding in the US, is intended to ward off a severe decline in economic activity and restore some order in the financial system.

A government takeover of the beleaguered housing finance majors would also help drive down mortgage rates, making it easier for people to buy homes and refinance risky loans.

Financial companies were badly seeking Fannie Mae and Freddie Mac to sell their mortgages as falling home prices and rising delinquencies have hurt their ability to make and hold loans.

The government's revival plan would, which is expected to be announced by Treasury Secretary Henry M Paulson Jr and and chairman of the Federal Reserve Ben S Bernanke, would cost billions of dollars in taxpayer money.

While the extend of losses is yet not known fully, some of the biggest losers would be shareholders who own more than $10 billion worth of Fannie Mae and Freddie Mac common stock, reports said.

As of end-2007, those shares, which are widely held by individuals, pension funds and mutual funds, were worth nearly $100 billion. Now those investments could be virtually wiped out. Fannie Mae shares fell nearly 22 per cent, to $5.50 in after-hours trading; Freddie Mac was down nearly 21 per cent, to $4.04.

Investors who own some $36 billion of the preferred shares could also take a big hit.

Sovereign Bancorp, a regional lender based near Philadelphia, holds about $588 million of the securities, about 13 per cent of its tangible capital, according to a research report.

Financial institutions and central banks around the world, who hold trillions of dollars of the companies' senior debt and mortgage-backed securities, could gain from a government takeover.