The U.S. Mortgage Bankers Association will call on Congress to transform U.S. government-controlled mortgage lenders Fannie Mae, Freddie Mac into several smaller privately held companies that would issue mortgage securities with a government guarantee, the Wall Street Journal reported.

The proposed framework, to be released Wednesday by the industry group, would give successor entities to Fannie Mae (FNM.N) (FNM.P) and Freddie Mac (FRE.N) (FRE.P) authority to create securities backed by certain types of mortgage, the paper said.

According to the paper, the new companies would guarantee the securities against defaults on underlying mortgages and pay fees into a federal insurance fund, which would guarantee interest and principal payments to bondholders if the companies were unable to make them.

If we're going to restore and maintain investor confidence and...consistent liquidity, that is going to require an explicit backstop, John Courson, chief executive and president of the MBA, told the paper.

The WSJ said the MBA's plan called for government agencies, rather than the new companies, to assume the mission of promoting affordable housing that Congress has long assigned to Fannie and Freddie.

The new companies also would not be allowed to hold large amounts of mortgages and securities under the proposal, the paper said.

Fannie Mae and Freddie Mac were not available for comment. (Reporting by Chakradhar Adusumilli in Bangalore; Editing by Dan Lalor)

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