The National Association of Home Builders will advocate that Fannie Mae (FNM) and Freddie Mac (FRE) not be revived as private shareholder-owned companies with a public mission, in testimony before a U.S. House panel Wednesday.

However, the mortgage finance companies also shouldn't be recast as fully private companies "because such companies could not be counted on to provide liquidity in times of crisis or to consistently address affordable housing needs," NAHB Chairman Joe Robson argues in prepared testimony before the Financial Services Subcommittee on Capital Markets.

The mortgage finance giants were thrown into the conservatorship of their regulator last fall after their mounting losses raised concerns they would collapse, sending financial shock waves around the globe. The government has agreed to pump $200 billion into each firm to keep them solvent. So far, it has provided, or committed to provide, $87 billion combined to the firms.

Policy makers are beginning to mull the future role for the firms once they emerge from conservatorship, which could take years. Critics blame the companies' hybrid private-public structure for their downfall, saying it encouraged them to take excessive risks because investors believed the government would bail them out.

Citing the conclusions of an NAHB task force, Robson says Fannie and Freddie shouldn't be converted into purely government entities. Rather, they should retain federal backing for providing guarantees of mortgage-backed securities. Robson seemed to envision a cooperative-like structure, in which mortgage and real-estate sector companies own shares in Fannie and Freddie.

"The task force concluded that a significant portion of the credit risk and interest risk should be shared by the private sector institutions that benefit from the government's secondary market support," Robson says in prepared remarks.

The Mortgage Bankers Association also believes the mortgage market requires government support, according to the written testimony of the group's vice chairman, Michael C. Berman. However, the group argues such support should be limited in scope and made transparent to investors.

"MBA recommends channeling this support through an explicit government guarantee against credit risks associated with certain mortgage investments," Berman says. "The cost to the government for providing this credit guarantee could be offset by risk-based premiums paid by investors."

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com