Consumer and housing advocacy groups fear Fannie Mae and Freddie Mac's declining influence in the U.S. housing market under a plan proposed by the Treasury Department Friday could have the unintended consequence of squeezing  low- to moderate-income homebuyers out of the market altogether.

"Historically, working class people have had access to private sector capital in order to purchase a home, with guarantees by the government to ensure affordability," said John Taylor, President and CEO of the National Community Reinvestment Coalition. "The administration’s plan, by emphasis and omission, suggests that this country’s commitment to ensuring homeownership for working families will be lessened."

The plan may see GSE's raise minimum down payments on their mortgages, while also having Fannie and Freddie charge investors higher guarantee fees to hedge against potential risks. These systematic changes would have the effect of placing GSE pricing levels on the same playing field as the private sector, analysts reported Friday.

Housing advocacy groups criticized the plan for relying too heavily on the private sector to lift the housing market at a time when capital is less fluid.

"These options would turn the mortgage system largely over to the Wall Street banks and investors whose irresponsible, unsafe and expensive mortgage products produced the financial crisis in the first place," said Barry Zigas, Director of Housing Policy for Consumer Federation of America. "It would be a classic case of putting the fox in charge of the hen house, but this time after the fox had already feasted on the flock once before."

While National Multi Housing Council President Doug Bibby commended the Treasury  for "taking the first step in what will be a long process to overhaul the nation's housing finance system." He also said "we have serious doubts about the ability of an 'emergency-only' federal guarantee to ramp up quickly enough to adequately respond to a capital crisis."

Bibby urged policymakers to develop solutions that will only reform parts of the system that are creating risk for the financial system, while leaving segments that are still working for homebuyers.

"We would urge policymakers to be very cautious in their reform efforts and not cause unintended consequences by trying to solve a problem that doesn't exist in the GSEs' multifamily business," Bibby said. "Quite simply, the GSEs' multifamily programs are not broken. They have default rates of less than one percent and they actually produce net revenue (profits) for the U.S. government. They pose no risk to the taxpayer. But they — and the nation's supply of workforce rental housing — stand at risk of becoming a collateral victim of the single-family meltdown."

Write to Kerri Panchuk.