In new role, GSE regulator carefully mulls capital

WASHINGTON (Reuters) - The head of the new regulatory agency overseeing Fannie Mae (FNM.N) and Freddie Mac (FRE.N)said he is mulling fresh capital standards for the mortgage finance companies, and said he expects the agency to move with "deliberate speed."

James Lockhart, chief of the newly-formed Federal Housing Finance Agency and who also headed the predecessor regulator, told Reuters in an interview on Monday that protecting the country's housing finance infrastructure is his biggest priority.

The Federal Housing Finance Agency was conceived as part of a sweeping, housing-rescue bill meant to aid the battered homes market and buttress Fannie Mae and Freddie Mac which had been pushed to the brink of collapse.

The FHFA, which replaces the Office of Federal Housing Enterprise Oversight, will oversee Fannie and Freddie, the two largest U.S. home finance providers, and the 12 Federal Home Loan Banks. All 14 entities have government mandates to make investments in the housing market.

Mandating the capital cushions that Fannie Mae and Freddie Mac must hold against possible losses is one of the most nettlesome duties facing the new regulator. The predecessor Office of Federal Housing Enterprise Oversight needed nearly nine years to set those standards.

"I can guarantee you that... we won't take anywhere near that time," Lockhart told Reuters. "We will work on it. I can't give you any deadlines."

FOCUS ON SAFETY

Lockhart said that protecting the housing finance infrastructure is his biggest priority.

"I think our key goal has to be, our No. 1 focus has to be, the safety and soundness of these 14" government-sponsored enterprises, he said.

Since Lockhart became the overseer for Fannie Mae and Freddie Mac in mid-2006, he had argued for consolidation of all the federal housing regulators.

When President George W. Bush signed the housing legislation on Wednesday, Lockhart became the new agency chief. He is likely to be replaced soon after a new president moves into the White House in January but will help build many new systems before then.

Lockhart said that he has spent the last two years mulling how to set risk-based capital rules for Fannie Mae and Freddie Mac but that establishing such standards would come only after much input from mortgage industry stakeholders.

"My view is that we are going to move with speed but deliberate speed. These are important issues for the markets," he said.

Lockhart that the dilemma of setting appropriate capital levels is just one of dozens of new responsibilities that he is beginning to rank in order of importance.

"I think we counted something like 25 regs, plus. We are working on which ones have the highest priority," he said.

CRISIS DRIVES CHANGE

Lockhart was one of the strongest advocates for creating a new housing regulator but recent turmoil gave those arguments an important boost.

A year ago, shares of Fannie Mae and Freddie Mac were trading above $60 but were driven to single-digits early last month as investors worried about future mortgage losses.

The crisis subsided only after the U.S. Treasury Department and Federal Reserve promised to backstop the companies. Creating a new housing regulator was one condition of government aid.

Although Lockhart is likely to see his term end early next year, he said he intends to do important work building the agency's infrastructure.

"The markets are not going to stand still for the next six months to wait for us," he said. "We are going to be very active working with Fannie and Freddie and the 12 Home Loan Banks."

(Editing by Leslie Adler and Carol Bishopric)