WASHINGTON -- The U.S. government regulator for Fannie Mae and Freddie Mac must do a better job limiting legal expenses paid by the two mortgage giants to their former executives facing lawsuits, a new watchdog report says.

A report issued Wednesday by the inspector general for the Federal Housing Finance Agency says Fannie and Freddie together have paid more than $109 million in legal expenses for former executives since 2004, with Fannie covering more than $99 million for just three top officials.

Taxpayers are footing the bill: The bailouts of the two companies have so far cost about $150 billion and that figure continues to grow.

The report says the agency should develop standard legal billing practices for Fannie and Freddie, expand its oversight and take other steps.

Fannie and Freddie buy mortgage loans from primary lenders, pool them, and sell them with a guarantee that investors will be paid even if borrowers default. The agencies have helped people buy homes at affordable interest rates.

But the two nearly collapsed in 2008, after the subprime mortgage market collapsed and defaults and foreclosures piled up. The government seized them in September 2008.

The report issued by the inspector general for the FHFA, Steve Linick, came a day after the agency submitted a plan to Congress that would shrink the mortgage giants' role in the housing market.

The proposal for a leaner Fannie and Freddie would mean that fewer mortgages are backed by the government. That could make buying

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