WASHINGTON (Reuters) - Fannie Mae FNM.N and Freddie Mac FRE.N may sell some bad assets to the Treasury Department but a decision has not yet been made, the regulator of the two mortgage finance companies said on Sunday.
“They are financial institutions that could sell assets,” James Lockhart, director of the Federal Housing Finance Agency, said during a C-SPAN television interview. “Whether they will or not certainly the decision has not been made.”
Lockhart estimated that between 2 percent and 4 percent of Fannie and Freddie’s assets are bad mortgages.
On Friday, President George W. Bush signed into law a $700 billion bailout package for the U.S. financial industry aimed at allowing Treasury to buy soured assets from institutions that have stopped lending to each other as well as individuals and businesses.
The two government-sponsored enterprises, which were seized by the government in early September, own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt.
The first asset sale under the Treasury program is not expected to take place for at least four weeks, sources familiar with the financial rescue plan said on Friday.
“It’s very important for them that Treasury will be able to buy those, free up capital at those banks to make new mortgages that hopefully Fannie and Freddie can buy,” Lockhart said.
The U.S. financial crisis has dealt a massive blow to the lending industry on Wall Street and in Europe. Companies have collapsed under the weight of nonperforming mortgages and related securities.
Some of the biggest U.S. financial institutions have failed, been bought by the survivors of the crisis or were seized by the government. Others have been forced to transform themselves.
Lockhart said he hoped Fannie and Freddie might become profitable soon. “Certainly we would hope that over the next year, two years, they would return to profitability, which also would be a major step forward,” he said.
One of the monumental tasks lawmakers and the next president will need to undertake next year is to determine if the GSEs will be publicly traded and backed by the government.
“There is no doubt about it, it has to be re-looked at,” Lockhart said. “My view is they should be able to come out of this situation with new investors and a much stronger capital structure.”
The road to recovery, however, could be littered with legal roadblocks as the FBI and the Securities and Exchange Commission examine their accounting, disclosure and corporate governance.
“They’re two of twenty-something financial institutions that are being investigated,” Lockhart said, referring to companies involved in the mortgage market in the last several years.
Lockhart said regulators have met with investigators and are cooperating. “I think it’s a legitimate thing to look at the two largest players,” he said.
Editing by Kenneth Barry