The mortgage giants Fannie Mae and Freddie Mac are headed for another government bailout soon unless policymakers act, their regulator warned Thursday.

In a speech to the Bipartisan Policy Center, Federal Housing Finance Agency Director Mel Watt noted that under the terms of the government's conservatorship, the government-sponsored enterprises are prevented from raising capital and must pass on their profits. When their capital runs out, the GSEs will have to draw on Treasury Department funds to continue operating.

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