June 18 (Bloomberg) -- Fannie Mae and Freddie Mac will remain in limbo as the U.S. Treasury secretary said the government doesn’t have time now to deal with the future of the two mortgage-finance companies it seized in September.

“We did not believe that we could at this time -- in this time frame -- lay out a sensible set of reforms to guide, to determine what their future role should be,” Treasury Secretary Timothy Geithner told the Senate Banking Committee in Washington today. “We’re going to begin a process of looking at broader options for what their future should be.”

“We just didn’t think its an essential thing to do just now, but it is an essential thing to do,” Geithner said.

Fannie Mae and Freddie Mac, which have posted $150 billion in losses going back to the third quarter of 2007, will need another “year or two” before they return to profitability, Federal Housing Finance Agency Director James Lockhart said.

While the government has stabilized the companies since seizing them in September, “turning around may be too strong a statement,” Lockhart said at a National Association of Real Estate Editors Association conference in Washington today.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, which own or guarantee almost half of the U.S. residential mortgage debt, were seized in September because of their losses and reshaped into integral components of government anti-foreclosure programs.

Mortgage Rates

The results of those government efforts are still below the administration’s initial goals. Lockhart said today that President Barack Obama’s program to help homeowners avoid foreclosure, which Fannie Mae and Freddie Mac help run, may now be hampered by a rise in mortgage rates.

“There’s a big pipeline, so it probably won’t hit for another few months,” Lockhart said in response to questions at the conference in Washington. “But at some point, if we don’t see some moderation in rates it could have an impact on the refinancings.”

Higher borrowing costs have come as Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes and stem the rise of foreclosures. His measures also include a tax break of as much as $8,000 for first-time homebuyers that wouldn’t require repayment.

Mortgage rates started climbing in May along with Treasury yields. The average 30-year rate was 5.38 percent this week, Freddie Mac said today in a statement. The rate is up from a low of 4.78 percent at the end of April.

Loan Refinancings

Fannie Mae and Freddie Mac have refinanced 80,000 loans under Obama’s Making Home Affordable program, Lockhart said. A quarter of those loans are to borrowers who have less than 20 percent equity in their homes, he said.

The program, announced in February, includes helping 5 million borrowers whose homes have declined in value. The program lets the companies refinance loans they already own or guarantee without adhering to the companies’ usual legal underwriting standards requiring extra insurance on properties that have lost value.

Lockhart said the companies are more aggressively modifying loans as well. More than half of their loan modifications in the first quarter cut borrower payments by more than 20 percent, compared with an average of 2 percent last year, he said.

February Deadline

Fannie Mae was created in the 1930s under President Franklin D. Roosevelt’s “New Deal” plan to revive the economy. Freddie Mac was started in 1970. The companies were designed primarily to lower the cost of home ownership by buying mortgages from lenders, freeing up cash at banks to make more loans. They make money by financing mortgage-asset purchases with low-cost debt and on guarantees of home-loan securities they create out of loans from lenders.

A Treasury report this week said the Obama administration “will engage in a wide-ranging process and seek public input to explore options regarding the future” of Fannie Mae and Freddie Mac and will deliver a report to Congress when the president gives his fiscal 2011 budget in February.

Options considered by lawmakers include winding the companies down and liquidating assets or using Fannie Mae and Freddie Mac to provide insurance for covered bonds.

Lockhart said earlier this month that the size and credit quality of Fannie Mae and Freddie Mac’s $5.4 trillion in mortgage assets creates “substantial uncertainty” as to their future structure.

Fannie Mae and Freddie Mac have requested $84.9 billion in taxpayer aid through the Treasury’s $400 billion program to buy preferred stock in the companies to keep them solvent. The remainder of the lifeline should still be “sufficient” until the government decides how to restructure the companies, Lockhart said in June 3 testimony to a House subcommittee.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: June 18, 2009 18:24 EDT