WASHINGTON  - Republicans in the House of Representatives on Friday recommended the country's two mortgage finance giants be phased out in four years in an effort to restore stability to the housing market.

The House Republicans offered 5 goals to guide the overhaul of Fannie Mae (FNM.N) and Freddie Mac (FRE.N), two Government-Sponsored Enterprises bailed out at the height of the financial crisis. The goals include reestablishing a housing finance market in which private capital is the primary source of mortgage financing.

The lawmakers put forward ten principles, among them winding down Fannie Mae and Freddie Mac and cutting their mortgage portfolio holdings 25 percent a year over four years.

It is time to deal with bailed out companies, which were at the center of the mortgage market meltdown that caused the financial crisis, and have cost taxpayers hundreds of billions of dollars. said Rep. Spencer Bachus, an Alabama Republican, and ranking member of the House Financial Services Committee.

The House Financial Services Committee, chaired by Rep. Barney Frank, a Massachusetts Democrat, will hold a hearing on Tuesday, March 23 looking at ways to improve the mortgage finance companies.

Treasury Secretary Timothy Geithner is expected to testify.

Fannie Mae and Freddie Mac were formed as government-sponsored enterprises with a mandate from Congress to provide liquidity to the U.S. housing market.

But in September 2008 the U.S. government seized control of the two firms to quell what had been a year-long credit market crisis that had helped push many economies toward recession.

In testimony on Wednesday Federal Reserve Chairman Ben Bernanke urged Congress come up with a new way of financing homes.

My assumption is that sometime soon, I'd hope soon, that the Congress will reform Fannie and Freddie, perhaps break them up, perhaps make them officially governmental, Bernanke said at a House Financial Services Committee hearing.

The House Republicans' ten principles also recommend establishing a regulatory framework for a U.S. covered bond market. They call for reduced leverage by phasing in capital requirements over four years that are consistent with global standards for large, complex financial institutions.

The goals also urge restoring stability and liquidity to the secondary market for residential mortgages, and preventing significant disruption to financial markets.

(Reporting by Nancy Waitz; Editing by Andrew Hay)