GSEs Remain Far from Sound in Regulator's Eyes.(Department of Housing and Urban Development. Office of Federal Housing Enterprise Oversight, government-chartered housing enterprises )

WASHINGTON -- It could be "several years" before the scandal-wracked government-chartered housing enterprises are out of the woods, their safety and soundness regulator told Congress.

Even Freddie Mac, which had been thought to have turned the corner on its accounting problems, is still in the doghouse with the Office of Federal Housing Enterprise Oversight, said acting director James Lockhart, who has been on the job just over a month.

"Both companies are several years away from having adequate internal controls" in place, he told the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

Mr. Lockhart said the sanctions in place at Fannie Mae - including a freeze on its mortgage portfolio - can be lifted at the sole discretion of the director. (The sanctions are part of a $400 million settlement Fannie signed with OFHEO and the Securities and Exchange Commission last month.)

The regulator added that it's "hard to see their total removal for several years." And he cautioned lawmakers that a similar limit on Freddie Mac is not out of the question, either. The company is "at least two years away from have acceptable accounting and risk management" in place, he told the panel.

The hearing was called by subcommittee chairman Richard Baker, R-La., to review OFHEO's recent report on the accounting irregularities at Fannie Mae.

Rep. Baker was perhaps the first lawmaker - a "lone wolf," House Financial Services Committee chairman Michael Oxley, R-Ohio, called him - to sense something was amiss with the GSEs. And he lit into both companies again last week.