Mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) might soon approach the Treasury Department to sell off some bad assets, according to a Reuters report Sunday. No final decision has been reached regarding the sale of Fannie and Freddie's bad assets, said Federal Housing Finance Agency director James Lockhart in a C-SPAN interview, according to Reuters. Bad mortgages account for 2 to 4 percent of the entities' total $12 trillion of outstanding mortgage debt, according to Lockhart. "It's very important for them that Treasury will be able to buy those, free up capital at those banks to make new mortgages that hopefully Fannie and Freddie can buy," he said. Hours after the House of Representatives passed the $700 billion rescue package Friday, President George W. Bush enacted the legislation that will enable the Treasury to buy up troubled assets like those of Fannie and Freddie. Lockhart said the legislation should allow the Government Sponsored Entities to recover from the present economic crisis "with new investors and a much stronger capital structure." "Certainly we would hope that over the next year, two years, they would return to profitability, which also would be a major step forward," he said. The announcement came days after Freddie followed Fannie's example Friday and dropped its adverse market charge for mortgages acquired in distressed markets. Freddie also announced Friday it plans to increase the fees put on risky loans and will require higher credit scores on some types of loans. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade. Editor’s note: To contact the reporter on this story, email