Dec. 12 (Bloomberg) -- The Japan Housing Finance Agency, with $429 billion in assets, said it needs a new business model after copying the failed practices of Fannie Mae and Freddie Mac.

The U.S. mortgage-finance companies, seized by the government this year, had been successful until they departed from their original goals and started pursuing higher profit, said Seiichi Shimada, president of the agency, in an interview with Bloomberg Television aired today.

“It is inevitable for a listed company to maximize profit in order to please its shareholders,” said Shimada. “Our mission is to create a stable environment that makes long-term housing loans available for everybody. It would probably be difficult for us to achieve that as a listed company.”

The Japanese government will decide the future of the housing agency, with options including privatization, by the end of 2009. It reported a loss of 171.7 billion yen ($1.9 billion) for the year ended March 31, according to data on its web site.

Shimada, who didn't outline a new business model, said the agency hadn't made investments in subprime loans, which triggered the meltdown of the U.S. housing market.

The organization, formed in 1950 as the Government Housing Loan Corporation, buys housing loans from financial institutions and sells them as mortgage-backed securities to investors. Until last year its main role had been lending directly to homeowners.

Unlike Fannie Mae and Freddie Mac, it doesn't seek profit through buying residential mortgage-backed securities from other issuers, he said.

Shimada, who visited Fannie Mae three years ago to exchange ideas, said certain continued government involvement would be essential for Japan to run a successful housing loan program.

“We were shocked by what happened to Fannie Mae and Freddie Mac because we have been following their models,” said Shimada. “If we must become a publicly-listed company, a certain level of government guarantee would probably be necessary.”

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

Last Updated: December 12, 2008 00:27 EST