Fannie, Freddie nationalization "inevitable"

NEW YORK (Reuters) - A private equity executive who formerly headed up regional bank North Fork Bancorp Inc said on Friday that some form of nationalization of Fannie Mae and Freddie Mac was "inevitable."

"The combination of the real problems that these companies have with the perceived problems that they have is deadly," John Kanas, now a private equity partner at WL Ross & Co, said in a telephone interview.

He described the mortgage entities as "critical," saying the backing they provide is not just for the mortgage market, but also supports the smooth running of the wider financial markets.

Nationalization, however, is not going to be problem-free, he said. Assuming the government fully backs the companies, that would imply the equity behind them is wiped out, he said.

"That alone is going to cause great dislocation," he added.

In the event of a federal bailout, the government is also likely to apply more stringent regulations to the companies.

"Everyone is going to go out of their way to make sure that the liberal extensions to credit that got us here in the first place aren't allowed anymore," he said. "That's good in the long run, but in the short-term it could be devastating."

Kanas was CEO of North Fork, which was acquired by Capital One Financial Corp in 2006. He led North Fork through its acquisition and was head of banking operations at Capital One until July last year. Kanas joined WL Ross as a senior adviser in February, focusing on distressed financial institutions. He is also an adviser to Capital One.

(Reporting by Elinor Comlay; Editing by Andre Grenon)