U.S. policymakers need to better define the public and private missions of Fannie Mae (FNM) and Freddie Mac (FRE) in order to provide more clarity about their roles in the financial markets, a top Federal Reserve official said Thursday.

Fed Gov. Daniel Tarullo, appearing before the Senate Banking Committee, said there needs to be a finer line set by lawmakers between the agencies' public policy missions to promote homeownership, and their operations as private companies.

Both firms, which help maintain liquidity in the mortgage finance market, have been under enhanced government control since last year. What to do with them, as well as how they will be regulated, remains an open question for policymakers as the Obama administration pushes its proposals to revamp the financial services industry.

-By Michael R. Crittenden, Dow Jones Newswires; 202 862 9273; michael.crittenden@dowjones.com