The former government regulator of mortgage giants Fannie Mae and Freddie Mac told an industry audience that the companies have nearly 100,000 real estate-owned properties, and that number is rising. James B. Lockhart III, the former director of the Federal Housing Finance Authority, made the comments as a featured speaker at the Five Star Default Servicing Conference and Expo in Ft. Worth, Texas, which was sponsored by DS News. He cited data that showed 35,000 REO assets on the books at Freddie and nearly twice that number — 68,000 — at Fannie. Despite the success of the Home Affordable Modification Program and other federal schemes to boost loan modifications, it remained to be seen how many of those homeowners would re-default, Lockhart said. He cited widely publicized reports that many modifications resulted in higher, not lower, monthly mortgage payments. He also was unafraid to admit that had happened on his tenure: In the first quarter of 2008, he said, only 3 percent of Fannie and Freddie borrowers received lower payments. “If you aren’t lowering payments, it’s not surprising you are not getting good results,” he said. Lockhart said that progress had undeniably made, as evidenced by changes to mortgage interest rates by Fannie and Freddie, to 5 percent from 6.5 percent. But he stressed that persisting economic problems with unemployment and commercial real estate could still create a drag on housing.

Lockhart — who resigned late this summer and currently is the vice chairman of WL Ross & Co., the investment vehicle for billionaire financier Wilbur Ross — became the top overseer for Fannie and Freddie last year, when the government-sponsored mortgage entities went into government conservatorship to avoid bankruptcy and a systemic threat to the global economy. Taken together, the companies still have $5.5 trillion in exposure to mortgages, and Lockhart said that while that wasn’t inherently bad, it reflected a lack of clear vision among buyers and sellers of mortgage securities. “Up until a year and a half ago, it was a successful secondary mortgage market,” he said. “We allowed them to leverage themselves too much. They gave people cheaper mortgages than they should have had, and now taxpayers are paying for it.” Lockhart did not rule out the idea of a private label market comeback, but he said time must first be take to stake out the important regulatory issues and properly separate the private and public sectors. “If you don’t draw the lines clearly, you have what we had. We had the private sector taking profits and then the public picking up the losses,” he said. “That was the big problem. We need a better understanding of what the private-public sector should be.”