WASHINGTON (Reuters) - Fannie Mae and Freddie Mac could be forced to retain their earnings to stabilize their operations and maintain investor confidence, the head of the U.S. agency regulating the mortgage firms said on Thursday.
Melvin Watt, director of the U.S. Federal Housing Finance Agency (FHFA), told the Senate Banking Committee he could order Fannie and Freddie to retain future profits as a way to shore up their accounts.
"We cannot risk the loss of investor confidence," he said. "FHFA's actions would be taken solely to avoid a draw during conservatorship."
Fannie and Freddie were private companies with a government mandate to finance the housing market until its 2008 collapse. At that time, the Treasury Department took control of the firms with an injection of taxpayers' cash.
For more than eight years, Fannie and Freddie have been under government control, or conservatorship.
The $188 billion taxpayer investment in Fannie and Freddie has yielded nearly $266 billion in returns. But the companies are now left with little wealth of their own and lawmakers cannot agree on what to do next.
Watt, who was appointed by former President Barack Obama, said the option of seeking billions of dollars more from the Treasury Department might rattle financial markets. "I cannot afford to take that risk," he told senators.
Watt said retaining profits "is something that I would prefer not to do" but that some action was likely before the end of the year.
Republican lawmakers urged Watt to continue to hand the companies' earnings back to the Treasury Department.