The regulator for Fannie Mae (FNM) and Freddie Mac (FRE) said Wednesday that the mortgage giants were working on new tools to crack down on mortgage fraud.

Federal Housing Finance Agency Director James B. Lockhart said he hopes to unveil the tools soon, which would be in addition to rules aimed at catching fraud announced earlier by the government-sponsored enterprises, or GSEs.

Reports of mortgage fraud have been on the rise in the aftermath of the housing bust, as lenders have scrutinized mortgage applications more carefully and reined in mortgage credit.

The number of mortgage fraud reports last year climbed 26% from a year earlier, according to a study released this week by the Mortgage Asset Research Institute.

In January, Fannie and Freddie announced new rules requiring mortgage originators and appraisers to provide identifying data on loans sold to the companies. The rules won't take effect until Jan. 1, 2010.

"Additional efforts to expand mortgage fraud prevention and detection are under consideration by the enterprises and their industry partners, and I hope to be reporting on them soon," Lockhart said in a speech he delivered at a Women in Housing and Finance symposium.

Lockhart said the mortgage giants were playing an important role in setting good standards for other mortgage market participants in a variety of ways, including with regard to working to help borrowers avoid foreclosure.

But he suggested the impact of that effort could be limited because the bulk of troubled mortgages are packaged into securities that the firms didn't issue. So-called private-label mortgage-backed securities represent 50% of serious delinquencies. Meanwhile, loans owned or guaranteed by Fannie or Freddie represent only about 20% of seriously delinquent loans.

Lockhart acknowledged that he was "very optimistic" when he announced a program in November for Fannie and Freddie to modify the loans they own or guarantee. He said he soon realized that the program wouldn't reach enough borrowers. During the fourth quarter of 2008 - the first quarter of the conservatorship - Fannie and Freddie completed 24,000 loan modifications.

"The numbers pale in comparison to the millions that we need to help," Lockhart said.

Lockhart said the mortgage giants and the twelve Federal Home Loan Banks also have been hurt badly by their roughly $250 billion of investments in private-label securities, or PLS. More than half of the firms' securities have seen their debt ratings sink from triple-A to junk, Lockhart said. This drop also has eaten away at the firms' capital cushions.

The private-label securities are "a major destroyer of capital" at Fannie and Freddie, Lochart said. "If you add them up, they are probably larger than the Treasury draw at this point," he added, referring to the $60 billion the government will have pumped into the firms by the end of this month.

Going forward, Lockhart said it might be possible to restructure Fannie and Freddie as firms that tap private capital yet also fulfill a public policy mission - an arrangement that critics said led to their downfall.

He suggested it could be done if a fee were levied on the firms' profits to support affordable housing goals, as opposed to meeting them through making riskier investments or business decisions. Lockhart said that regulators may have pushed the firms too hard on such goals, helping to cause their downfall. He said, for example, that the PLS the firms bought were "gold-rich" in terms of affordable housing goals.

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