U.S. House of Representatives lawmakers on Wednesday began debating the future structure of Fannie Mae (FNM) and Freddie Mac (FRE), a discussion sure to divide policy makers along stark ideological lines.

Republican members of a House panel advocated the government-controlled mortgage finance companies be spun off as private companies, in opening remarks before a House panel.

A key Democrat, however, immediately cast doubt on the idea that the federal government should exit the business of supporting the mortgage market.

"We created Fannie Mae and Freddie Mac because of a market failure, and we ought to ensure that any new system of housing finance continues to provide a stable source of funding and long-term credit to help people to purchase homes," Chairman Paul Kanjorski, D-Pa., of the Financial Services Committee's Subcommittee on Capital Markets said at the start of the panel's hearing.

Fannie and Freddie, which are government-sponsored entities, or GSEs, 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, $86 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.

"Whatever the GSEs' ultimate fate, we can all agree that the GSEs cannot continue as before. Socializing risk and privatizing profit must end," said Rep. Spencer Bachus, R-Ala., the ranking Republican on the House Financial Services Committee.

Several proposals have been floated for the future structure of the companies, including folding them completely into the federal government, spinning them off as purely private firms and reviving them in their old form.

Former Treasury Secretary Henry Paulson advocated transforming them into public utilities, with private shareholders but restrictions on their activities and profits. Others have suggested the firms could be revived as cooperatives in which the major mortgage market participants would hold shares. Fannie and Freddie, in turn, would provide guarantees on mortgage-backed securities.

Privatizing the firms would meet stiff resistance from industry groups. The National Association of Home Builders, the National Association of Realtors and the Mortgage Bankers Association all advocate some level of federal support for the mortgage market.

Fannie and Freddie shouldn't be completely privatized "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 argued in prepared remarks to the panel.

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