As federal authorities sift through on possible clues to determine the root cause of Freddie Mac’s and Fannie Mae’s collapse in September 2008, The Federal Housing Finance Agency revealed Thursday last week that the two companies mainly succumbed to soured loans and their assumed role of mortgages guarantors.

The federal regulator seeks the probable explanation to avert replicating the huge real estate avalanche that sent shock-waves to the nation’s housing industry and also aid federal efforts in restructuring the companies.

Treasury Secretary Timothy Geithner scored the companies’ flawed practice of borrowing from the financial markets and then using up the funds to acquire huge amounts of mortgages bonds.

Geithner had remarked two months ago that Freddie and Fannie were given inexplicable leeway in their operations, which the two companies utilized “to expand and manage their investment portfolios without regard to the risk they posed to the system.”

Experts said that FHFA’s finding could prove sufficient references for US policy makers in their attempts to dodge replicating another Fannie and Freddie episode and allow the government to retain its role as mortgages guarantor but will less risk on government-sponsored investment portfolios in order to avoid wasting federal funds.

Geithner confirmed this new policy when he asserted last week that the two companies’ portfolios would eventually reach insignificant levels but he assured that the government would continue on its “objective of providing a measure of stability in access to mortgages, even in future economic downturns.”

Following its money-bleeding episodes in 2007 that resulted to a whopping $230 billion in losses, the federal government took over Freddie and Fannie the next year and started injecting taxpayers’ money of up to $150 billion into the two companies to keep them afloat.

On its report, the FHFA said that Freddie and Fannie mostly incurred huge losses through bad investment choices that amounted to $21 billion or about nine percent of the portfolio businesses and mortgage securities that the two companies had poured money in.

On the other hand, the companies bled by as much as $166 billion, which accounted for 73 percent of their total losses, which the federal regulator said were largely caused by their practice of guaranteeing dizzying amounts of mortgage securities.

The FHFA said that Freddie and Fannie guaranteed a total amount of $4 trillion in mortgages as against their investment portfolios of $2 trillion and most of the slips occurred as the two companies accelerated the granting of mortgage security en route to guaranteeing an almost unlimited number of securities.

The federal regulator said that the whole process was fraught with loopholes as Freddie and Fannie rushed into besting out rival private banks by purchasing and guaranteeing too many amount of risky loans.

Setting aside the requisite security of income and employment verification, the two companies slowly acquired disproportionate share of credit losses, then the inevitable ensued, according to the FHFA, “as house price declines and prolonged economic weakness have taken a toll on the credit performance of traditional mortgages.”

The FHFA said that the risky practices of the firms were only halted when the federal government took over their operations and forced them to concentrate only on high-quality mortgages.