Some of the nation's largest mortgage lenders and insurers have formed a watchdog group to guard their turf against Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers.

FM Watch, a coalition of trade groups representing lenders, insurers and other mortgage-industry firms, vows to keep Fannie Mae and Freddie Mac within their chartered role of buying mortgages and repackaging them into securities.

Fannie Mae and Freddie Mac were formed by the federal government to ensure mortgage lenders a continuous supply of credit to offer home buyers. The companies, though government chartered, are owned by shareholders and publicly traded. Together, they control nearly 90 percent of the secondary mortgage market.

That market isn't growing as fast nowadays because increasing numbers of Americans own their homes. FM Watch worries that Fannie Mae and Freddie Mac will look elsewhere for new revenue sources.

"To increase their profits, they are intruding on, and upsetting, open and competitive markets for many financial products and services, to the ultimate detriment to the consumer," FM Watch said in a statement.

The group, handing out symbolic yellow flashlights, says it will put a spotlight on Fannie Mae and Freddie Mac and "alert the public to . . . actions which benefit the interests of their investors at the expense of home buyers and taxpayers."

Traditional mortgage lenders and insurers fear they would be unable to compete with Fannie and Freddie if they were allowed to offer mortgages or mortgage insurance directly to consumers.

"The biggest one you hear is that we're going to go directly to the consumer and originate mortgages," responded David Jeffers, vice president of corporate relations at Fannie Mae. "We don't have any interest. We have no reason to want that."

Fannie Mae and Freddie Mac wield extensive influence in Washington and would be formidable opponents for FM Watch. Fannie Mae spent $5.6 million lobbying the federal government last year, according to reports filed with the Senate.

To build its lobbying strength, FM Watch has hired Haley Barbour, former chairman of the Republican National Committee; the law firm Hogan & Hartson; and the public relations outfit Policy Impact Communications Inc.

One of the group's opening shots came in letter to HUD Secretary Andrew Cuomo, urging the Department of Housing and Urban Development to push Fannie Mae and Freddie Mac to do more for affordable housing. HUD, which is reviewing the performance of the two government-sponsored entities, should see to it that they fund more loans in lower-income areas, FM Watch said.

The government-sponsored enterprises are also being challenged by members of the Federal Home Loan Bank System, which has created a program to fund mortgage lending in lower-income areas. Fannie Mae says it is better qualified to serve those areas; it says the system's member thrifts and other financial firms are entering risky new areas where they have little experience.

The real estate and financial industries worry that Fannie Mae might enter the mortgage insurance business or originate mortgages on its own. Banks and insurers argue it has an unfair advantage because it can borrow more cheaply than fully private companies. While the government doesn't guarantee Fannie Mae's securities, investors assume the government won't let it fail.