UPDATE 2-Fannie, Freddie U.S. bailout to peak at $169 bln

* Repayments to outstrip taxpayer aid starting late 2012

* No new cash advances for Fannie, Freddie by late 2013

* Net losses to taxpayers to fall to $73 billion in decade (Recasts with peak bailout figure, explains dividend)

By Corbett B. Daly

WASHINGTON, Feb 14 (Reuters) - The White House expects taxpayer aid for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) to peak at $169 billion late next year before beginning a gradual process of shrinking to less than half that amount over the next decade.

President Barack Obama's budget request released on Monday includes an estimate that the two companies would take a net $38 billion of additional taxpayer aid through September next year, leaving them as the two largest ongoing recipients of bailout funds generated by the financial crisis of 2007-2009.

The pair, which were seized by the Bush administration in 2008 amid mounting losses from bad loans, are expected to begin paying the government more than they take from the Treasury Department starting at the end of next year.

Under their takeover terms, the companies must make a 10 percent dividend payment on the government loans, much as credit card borrowers must make minimum monthly repayments.

The Obama administration expects Fannie Mae and Freddie Mac will be able to start paying down loan balances without taking new government cash advances in the budget year that begins in the final three months of 2013.

Fannie Mae and Freddie Mac have so far taken $151 billion in taxpayer aid and paid back $20 billion in dividend payments, leaving taxpayers on the hook for $131 billion.

"Starting in 2013, the budget forecasts that Fannie Mae and Freddie Mac will have sufficient earnings to pay part but not all of the scheduled dividend payments," the document said, noting that year's $23 billion dividend payment will exceed the $11 billion advance.

Over the next decade, the Obama administration expects repayments to bring net taxpayer losses down to $73 billion.

The White House on Friday proposed slowly doing away with the two entities, which buy up mortgages and bundle them to be sold as securities to investors, freeing up cash for lenders to lend again.

The Obama administration last week also laid out several options for Congress to reduce the government's role in the mortgage market.

More than 85 percent of new loans are backed by the government in some way, including Fannie, Freddie and the Federal Housing Administration, which does not make loans directly but insures those that meet certain standards.

The latest figures on additional taxpayer aid for Fannie and Freddie could give ammunition to Republicans in the House of Representatives who want to eliminate altogether any government assistance for mortgages.

Democrats may seize on the expected payback to call for a slower and more gradual pullback of the government's support for the housing market.

Obama's budget plan also proposed reducing the role of the FHA in the $10.6 trillion U.S. mortgage market.

His administration wants to raise the cost of loans backed by the FHA by a quarter percentage point, beginning in April 2011. That would make FHA loans more expensive, allowing private insurers to more easily compete.

(Reporting by Corbett B. Daly; Editing by Sandra Maler and Eric Walsh)