House Financial Services Committee Chairman Barney Frank said Friday that he will be recommending Congress close the doors on the government-backed mortgage giants Fannie Mae and Freddie Mac and rebuild the nation’s housing finance system from ground zero.

According to Frank, who has long been one of the GSEs’ biggest proponents on Capitol Hill, the two firms cannot continue in their current form and his committee plans to propose killing off the enterprises completely rather than taking a “piecemeal” approach to their restructuring.

Since the government took control of Fannie Mae and Freddie Mac in September 2008, it has had to pump more than $100 billion of taxpayer dollars into the two firms as loan losses have mounted. In December, the administration announced that it was lifting the $400 billion cap on the GSEs’ financial line of credit, and said the administration would inject as much money “as necessary” into the enterprises over the next three years to ensure the companies maintain a positive net worth.

Frank gave few details about his proposed plan beyond the fact that it would include the complete dismantling of the two mortgage financiers. Mainstream media has been speculating for weeks now that President Obama’s address on the national budget next month will also divulge the administration’s own plan for the restructuring of Fannie Mae and Freddie Mac, but none expect it to be as extreme as Frank’s.

In a PBS News Hour interview, Treasury Secretary Timothy Geithner said he doesn’t expect Congress to pass legislation restructuring the two companies until next year, but he said the administration agrees that the government should “take a cold, hard look” at the future of Fannie Mae and Freddie Mac.

“We are committed to propose a set of detailed reforms beginning this year,” Geithner told PBS. “...I don’t think we’re going to be able to legislate that until that process can start until next year, because it’s just a complicated thing to get right.”

The GSEs are a cornerstone of the federal government’s Making Home Affordable program. Frank conceded in remarks to CNBC earlier this month that Fannie Mae and Freddie Mac have become a “public policy instrument of the government,” which no longer resemble the entities that they have been in decades past but instead are being used as a conduit for the government’s mortgage finance initiatives and to prop up housing prices.

A report released last week by Standard & Poor’s (S&P) predicts Fannie Mae and Freddie Mac’s role in the mortgage market “will likely increase in the future.”

Analysts at S&P warn that any exit from conservatorship for the GSEs must be carefully planned in order to avoid a sharp increase in mortgage rates and further tightening of mortgage lending that would depress home prices again.

The report says, “Our outlook for 2010, and perhaps into 2011, is that our ratings should continue to reflect the government’s ongoing extraordinary support for the GSEs.”

“It’s hard for us to imagine how the $11 trillion U.S. residential mortgage market could attract enough private capital to replace the GSEs historical share,” which was 51 percent at the end of September 2009, compared with 43 percent at the end of 2007, the S&P report said.