REFILE-UPDATE 1-US FHFA defends role overseeing Fannie, Freddie

(Refiles to correct day to Tuesday in lede)

WASHINGTON Feb 2 (Reuters) - The regulator for Fannie Mae and Freddie Mac on Tuesday defended the way it has overseen the two mortgage finance agencies since the government took control of the firms a little more than a year ago, including the decision to allow multimillion dollar pay packages for top executives.

"As conservator, I believe it is critical to protect the taxpayer interests in the Enterprises by ensuring that each company has experienced, qualified people managing the day-to-day business operations in the midst of this uncertainty," Federal Housing Finance Agency Acting Director Edward DeMarco said in a letter to key lawmakers on Capitol Hill.

The government put the two firms into "conservatorship" in September 2008 and on Christmas eve 2009, DeMarco approved pay packages that could allow up to $6 million of each of the top executives.

As part of his effort to protect taxpayers, DeMarco said the two firms, commonly referred to as government sponsored enterprises, would not be allowed to introduce new loan products in the mortgage market.

"In view of the critical and substantial resource requirements of conserving assets and restoring financial health, combined with a recognition that the Enterprises operate today only with the support of taxpayers, I believe the Enterprises should concentrate on their existing core business, including minimizing credit losses," DeMarco wrote in the letter, released to media soon after it was sent.

The letter was addressed to Senate Banking Committee Chairman Chris Dodd, the top Republican on his panel, Sen. Richard Shelby, House Financial Services Committee Chairman Barney Frank and top committee Repubican, Rep. Spencer Bachus.

DeMarco also said private firms are likely to replace the Federal Reserve as buyers of new mortgage-backed securities issued by the two GSEs and he does not expect Fannie Mae or Freddie Mac to be substantial buyers of mortgages.

An exception is that the enterprises will be able to buy delinquent mortgages out of mortgage-backed security pools, he said.

The Fed is due to end its program of buying $1.25 trillion of agency mortgage-backed securities on March 31.

(Additional reporting by Mark Felsenthal; Editing by Dan Grebler)