A key U.S. senator said Tuesday that Fannie Mae (FNM) and Freddie Mac (FRE) won't be reconstituted in their old mold before being thrown into conservatorship by the federal government.

"Fannie and Freddie will be very different," Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters.

He expressed cautious support for recreating the mortgage finance giants under a public utility model, calling it "an interesting concept."

The companies were seized by The U.S. Treasury Department and their regulator, the Federal Housing Finance Agency, on Sept. 6 amid fears they would collapse from mounting mortgage defaults, throwing the global financial system into turmoil. Treasury agreed to pump as much as $200 billion as needed into the companies to keep them solvent.

Congress is under pressure to decide the fate of Fannie and Freddie because the Treasury backstop and a liquidity facility for the companies expire at the end of the year.

Outgoing U.S. Treasury Secretary Henry Paulson has spoken favorably about reconstituting the companies as public utilities. Under such a model, Fannie and Freddie would remain shareholder-owned but be subject to oversight by a commission that could cap the companies' profitability.

Private shareholder-owned companies, Fannie and Freddie long enjoyed lucrative ties to the government that allowed them borrow money cheaply. Critics charge those ties led them to grow recklessly and stray from their core mission of providing liquidity to the mortgage market.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com

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