The debate over the future of Fannie Mae and Freddie Mac continues to heat up. The National Association of Realtors (NAR) released an unpublished proposal to DS News this week that advocates converting the two GSEs into government-chartered, non-profit corporations.

NAR said in its proposal, “Unlike a federal agency, the new government non-profit authorities will function as self-sustaining organizations, without needing annual appropriations from Congress and without a profit motive. NAR believes that any organization with a private profit and public loss structure, as the GSEs are presently structured, is inherently flawed.”

NAR says because of the two firms’ existing infrastructure and prominent positions within the mortgage securities arena, they should continue as non-profit secondary mortgage market authorities, with an inherent responsibility of ensuring “the flow of capital continues to enter the mortgage market regardless of the state of the housing or mortgage markets or overall economy.”

The new non-profit authorities should take the “best components from the current GSEs, and import improvements from other secondary market models,” NAR wrote, noting that political independence is obligatory for successful operation.

The Realtor group says, though, that the government must clearly, and explicitly, guarantee the business of the new entities, and that taxpayer risk should be mitigated with mortgage insurance and guarantee fees.

The trade group’s proposal has been circulated among policymakers on Capitol Hill, who are currently wrestling with what should be done with the two mortgage giants.

In a letter to lawmakers earlier this month, Edward DeMarco, director of the Federal Housing Finance Agency (FHFA) that oversees Fannie and Freddie, acknowledged that the “enterprises’ operating in conservatorship cannot be a long-term solution.”

Since the federal government took control of the GSEs in 2008, Freddie Mac has posted losses of $70 billion, and Fannie Mae has realized losses of $111 billion (Fannie’s figure does not yet include Q4 2009 results). The deficits have exhausted the value of each company’s shareholder equity and resulted in considerable draws from Treasury.

To date, Fannie Mae has taken $59.9 billion from its credit line with the Treasury, and Freddie Mac has drawn $50.7 billion. DeMarco called “these calls on taxpayer funds…troubling to all of us.”

House Financial Services Committee Chairman Barney Frank plans to convene a hearing next month on the future of housing finance and the government’s role in supporting Fannie and Freddie. Last month Frank said he favors abolishing the two GSEs altogether and rebuilding the nation’s housing finance system from ground zero.

Treasury Secretary Timothy Geithner told a congressional committee this week that the administration will not unveil its plan for the GSEs until 2011, while Federal Reserve Chairman Ben Bernanke remarked to lawmakers Thursday that Fannie and Freddie were in “no-man’s land.”