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Tim Johnson, the South Dakota Democrat who wrote a bill to eliminate Fannie Mae and Freddie Mac, sat in the walnut-paneled chambers of the Senate Banking Committee yesterday and said Congress might never get rid of the two companies.

Johnson looked at Mel Watt, the director of the Federal Housing Finance Agency who was testifying before the committee, and told him to terminate U.S. control of the two companies. That would end a six-year political battle over dissolving the two mortgage giants, giving them another chance to prove they can carry the home loan system as private companies.

If Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship, said Johnson, who is set to retire in December.

Shares of Fannie Mae and Freddie Mac are soaring on the news. After the hearing, Watt told reporters that he wouldnt rule out talks with Treasury about ending conservatorship in the long term. Fannie Mae shares rose 6.4 percent to $2.48 as of 10:29 a.m. in New York. Freddie Mac increased 8 percent to $2.42.

Johnson is the first lawmaker to publicly say that regulators may have to take control of the companies futures. He echoes the predictions of housing analysts that there is no chance the Republican leadership taking over the Senate will reach an agreement with Democrats and President Barack Obama to reform a system that guarantees affordable mortgages to most Americans. That would leave the overhaul to Watt, who has already begun to make a series of changes, from streamlining operations to transfers of mortgage-bond risk to private investors.

If we could get Congress to do something that would pass, it would be the best solution, said Clifford Rossi, a finance professor at the University of Marylands Robert H. Smith School of Business in College Park. But its clear that its highly unlikely, particularly after the midterm elections, that were going to get legislation again.

Fannie Mae (FNMA) and Freddie Mac, which buy mortgages and package them into bonds backed by a government guarantee, were seized by regulators in 2008 as losses on defaulted loans pushed them toward insolvency.

After a $187.5 billion taxpayer bailout, Fannie Mae and Freddie Mac rebounded and are now required to send the Treasury all of their profits. Theyve paid a combined $225.5 billion, which is counted as a return on the U.S. investment and not as repayment, leaving the government-sponsored enterprises without a legal avenue to exit conservatorship on their own. The U.S. government owns a 79 percent senior stake in the two companies.

The extent of Treasury and FHFAs power to free Fannie Mae and Freddie Mac from government control is under debate.

Jim Parrott, a senior fellow at the Urban Institute and former housing-policy adviser to Obama, said Treasury and FHFA would need congressional approval to change the current system.

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Regulators Urged to Set Fannie-Freddie Free From U.S.