The National Association of Home Builders believes Fannie Mae (FNM) and Freddie Mac (FRE) should not be revived as private shareholder-owned companies with a public mission.

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 will tell the Capital Markets subcommittee of the U.S. House of Representatives Financial Services Committee when it meets Wednesday afternoon.

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 U.S. 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.

New York University Stern School of Business Professor Lawrence J. White says in his prepared testimony that Fannie and Freddie should be spun off as purely private companies and the government should ramp up its assistance to low- and moderate-income borrowers who want to buy homes.

Citing the conclusions of an NAHB task force, Robson says in his prepared testimony that 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.

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."

On behalf of the National Association of Realtors, Frances Martinez Myers argues in its testimony against privatizing Fannie and Freddie, saying "it would incent them to act as current private investors and flee the market during an economic downturn."

Martinez also says that removing the government's support of the mortgage market will take away lenders' incentives to serve lower-income borrowers.

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