WASHINGTON (Reuters) - An overhaul of Fannie Mae and Freddie Mac is highly unlikely to make it into this year’s legislative calendar, Congressional staffers say, possibly shifting the new administration’s immediate focus to allowing the mortgage financing institutions’ to rebuild depleted capital.

A woman toting an umbrella passes Fannie Mae headquarters in Washington February 21, 2014. REUTERS/Kevin Lamarque

Fannie and Freddie stocks soared late last year when President Donald Trump’s pick for Treasury Secretary Steve Mnuchin said the companies that have been in government conservatorship since the 2008 financial crisis should be privatized.

Hedge funds and other investors have been lobbying for the removal of government controls over the mortgage giants’ profits, which since 2012 have been transferred to the Treasury, and their eventual privatization.

The shares dipped when Mnuchin seemed to backpedal on the privatization pledge during his January confirmation hearing and suffered another setback last month when a court rejected investors’ suit against the dividend transfers.

Congressional staffers say the Senate Banking Committee has begun weekly bipartisan staff briefings on Freddie and Fannie reforms, but it is starting from scratch. The House Financial Services Committee is focused on other legislation, such as renewing the flood insurance program and rolling back parts of the Dodd-Frank financial reform, pushing the mortgage giants’ revamp down the to-do list, they say.

Instead, investors’ focus is shifting to how Mnuchin and Federal Housing Finance Agency Director Mel Watt, an Obama Administration holdover, will manage the dividends transfers.

Analysts expect the two institutions to make a full $10 billion dividend payment for the fourth quarter on March 31. But investors will be looking for any indication from Watt or Mnuchin about whether they plan to allow the mortgage firms to retain profits later on and begin the slow recapitalization process.

Though rebuilding an adequate capital buffer would take years - as long as two to three presidential administrations, according to one analyst - it would eventually allow Fannie and Freddie to leave government conservatorship, returning value to their investors.

Watt has warned the mortgage giants have a dangerously thin capital buffer. Mnuchin said during his confirmation hearing he favored finding a “bipartisan fix.”

The two will likely wait for congressional inaction to become a de facto impasse before letting Freddie and Fannie hold on to their profits, analysts said, estimating a decision could be made two or three quarters out.

“Mnuchin has been out there talking about a bipartisan agreement,” Heights Securities analyst Edwin Groshans told Reuters. “That process will have to play out until it in essence fails. When that process fails, that would open the opportunity for Mnuchin and Watts to act.”

Tim Pagliara, an investor who founded Investors Unite, a coalition of more than 1,000 Fannie and Freddie investors, told Reuters he did not expect an imminent legislative fix and called the situation in Congress “fluid.”

“The focus is going to continue to be on the court cases and what the administration is going to do – and what they’ve said they’re going to do,” Pagliara added.

President Donald Trump’s administration generally supports transferring government programs to the private sector. Trump donor John Paulson runs three hedge funds in which the president has invested and which held stakes in the mortgage institutions. Mnuchin, under the terms of a government ethics agreement, divested between $1 million and $2 million he had in Paulson’s funds.

Fannie and Freddie provide stability to the U.S. housing market by buying mortgages and bundling them into government-backed securities. During the financial crisis, they received $187 billion in government aid and by now have repaid $265 billion via dividend payments to the Treasury.

FHFA’s Watt has warned the payments have depleted the companies’ capital buffer and that by January 2018 they will have “no ability to weather quarterly losses.”

Fannie was required by law to keep a minimum capital reserve of about $33 billion and Freddie $29 billion headed into the 2008 bailout, which suspended those requirements.

Industry analysts, shareholders and advocacy groups - both conservative and liberal - all believe that the same 2008 bailout law gives Watt the authority to allow the companies to begin rebuilding capital, without waiting for Congress.