WASHINGTON  - The Obama administration and U.S. lawmakers are missing an opportunity to revamp the U.S. housing finance system, which should be central to regulatory reform, a top Federal Reserve official said in an interview on Monday.

Fixing the U.S. housing market should be one of the main focuses of regulatory reform legislation, and instead we are kicking the can, St. Louise Federal Reserve Bank President James Bullard told Reuters.

That is the wrong approach to regulatory reform. It should be a key pillar, he said. How to fix the situation in the mortgage markets ... is an issue that the nation has not faced up to.

The Obama administration unveiled an 88-page proposal to rewrite U.S. financial rules in June of last year, but it steered clear of offering a vision for restructuring Fannie Mae (FNM.N)(FNM.P) and Freddie Mac (FRE.N)(FRE.P), the two companies at the heart of the U.S. mortgage finance system.

Fannie Mae and Freddie Mac, which together own or guarantee one-half of all U.S. mortgages, were seized by the U.S. government and put into conservatorship in September 2008 at the peak of the financial crisis.

The administration had said it would offer its views on the future of the two government-sponsored enterprises (GSEs) at around the time of the president's fiscal 2011 budget proposal.

But in the budget plan released last week, it said it would provide updates on considerations for longer-term reform ... as appropriate. The White House is still expected to release some broad principles, but officials cautioned against expecting much detail.

In an editorial on Monday, The Washington Post called the lack of a proposal on the GSEs alarming and a cop-out.

Regulatory reform plans on Capitol Hill have also left the GSEs out of the equation, although U.S. House Financial Services Committee Chairman Barney Frank said last week his panel will hold hearings on March 2 to begin to consider longer-term GSE reform.

In the interview, Bullard said he expects a flat housing market this year.

I don't think we will see any further deterioration in 2010, but you probably won't see a lot of rapid improvement either. You'll just hang around at these low levels, he said.

The St. Louis Fed chief expressed confidence that the Fed's decision to end its $1.25 trillion program to purchase mortgage-backed securities at the end of next month would not damage the fragile housing market.

I think it will be seamless, Bullard said, adding that he did not expect to see a noticeable rise in mortgage rates.

Many mortgage industry participants expect rates to rise a half-point to three-quarters of a point when Fed purchases end.

There might be traders that have positions, and they are trying to bet one way or the other on what the Fed might do. That's not public policy, Bullard said.

(Additional reporting by Mark Felsenthal, Pedro Nicolaci da Costa, Kristina Cooke and Emily Kaiser; editing by Jeffrey Benkoe.)