James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said that mortgage finance concerns Fannie Mae and Freddie Mac should each be allowed to prop up the U.S. home mortgage market in periods of financial malaise.In an interview with The Wall Street Journal, Lockhart said the companies, whose combined mortgage portfolio is roughly $1.4 trillion, creates a serious risk if they fail to control their interest-rate risks, but nevertheless both have a role for their portfolios, albeit on a smaller scale, to ensure monies available for home loans.

If investors such as banks, hedge funds and institutional investors back off from buying mortgages during rocky financial periods, Fannie Mae and Freddie Mac should be able to step in and buy mortgages. Once the market recovered, he said, they could sell the mortgages to other investors.

Lockhart's comments come as the Bush administration wants the concerns to sell off their mortgage and securities portfolios in the aftermath of accounting scandals at each.

Fannie Mae agreed to pay $400 million to put an end to the accounting woes that have dogged the home mortgage giant since 2004. As a result, the company expects to reduce net income by upwards of $11 billion in financial restatements for fiscal years spanning 1998 to 2004.

Meanwhile, the OFHEO fined Freddie Mac a record $125 million in 2003 for misstating earnings by $5 billion.

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