James Lockhart, the U.S. regulator who nationalized Fannie Mae and Freddie Mac, will soon resign after more than three years as overseer for the mortgage finance companies, an administration official said on Wednesday.

Lockhart will step down very soon as head of the Federal Housing Finance Agency, the official said, but no decision has been made about a suitable long-term replacement, or the role that person would have in shaping housing policy.

Lockhart himself, when asked in a Reuters interview if he is leaving soon, would not comment on any move but said he was proud of his work as a regulator and was looking forward to returning to private life.

It's just time to get back to the family, said the native of Greenwich, Connecticut who commutes weekly to Washington. In the not-too-distant future, it would be reasonable for me to move on.

NOT AN ACT OF VENGEANCE

In September, Lockhart's agency seized Fannie Mae and Freddie Mac as the companies, facing mounting losses, were pushed to the brink of collapse.

Federal Reserve Chairman Ben Bernanke and then Treasury Secretary Henry Paulson encouraged Lockhart to bring the companies under the government's wing to halt the panic.

Fannie Mae and Freddie Mac held a favored place in capital markets because investors read their government ties as an implicit guarantee. Foreign central banks had loaded up on the companies' $1.6 trillion in outstanding debt, assuming that Washington would never let the companies fail.

That was certainly one of the contributing factors to seizing the companies, Lockhart said.

For years, conservatives tried to snip those government ties but Lockhart said the decision to seize Fannie Mae and Freddie Mac was not political.

This was not vengeance. This was a necessity to keep the mortgage market and therefore the U.S. economy going, he said.

As a five-year housing boom turned to bust in 2006, Fannie Mae and Freddie Mac had to use more of their capital reserves to cushion the blow of mounting defaults and multi-billion dollar losses.

In the spring of 2008, the companies promised to raise billions of dollars more from investors.

In retrospect, that was probably still too little. It may have helped the confidence but if you see the losses they have taken since then, it would not have been enough, Lockhart said.

In the second half of 2008, Fannie Mae booked $54 billion in losses while Freddie Mac saw $49 billion of red ink. Lockhart lamented Fannie Mae and Freddie Mac had not moved earlier to trim their mortgage holdings and boost capital.

Fannie did get some capital raised in June (2008). Freddie never did. Their board resisted it, concerned about diluting shareholders. Of course, they got the ultimate dilution, Lockhart said.

TIES TO BUSH

Lockhart, 63, was a prep-school classmate of former President George W. Bush and the two men developed a friendship in their youth and as peers at both Yale and Harvard Business School.

In the spring of 2006, Bush tapped Lockhart to oversee the two government-sponsored enterprises that were trying to right themselves after accounting scandals.

Lockhart said he, along with many other regulators, underestimated the housing market downturn.

In late July 2008, Bush signed a law that would aid troubled homeowners and give Lockhart's agency the power to seize Fannie Mae and Freddie Mac if they were to falter.

It's up to you, Lockhart remembers the president saying.

Since the companies were nationalized, Fannie Mae and Freddie Mac have been funneling aid from Washington.

Some critics say that foreclosure prevention aid runs against the regulator's duty to return the companies to profitability but Lockhart said the two largest mortgage finance firms have an interest in improving the entire market.

If you are sitting on $5.4 trillion of mortgage paper, if you can stabilize the market or help slow the fall of house prices... you are going to be a lot better off even if there is a short-term cost, he said.

(Reporting by Patrick Rucker; Editing by Chizu Nomiyama)

George W. Bush Ben Bernanke Fannie mae Freddie mac