Bruce Berkowitz’s recent stake increase in preferred shares of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) Mae and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) could be betting on equitable treatment for all shareholders, reports Stephen Gandel, senior editor of Fortune.

Fannie Mae

Bruce Berkowitz Issued A News Release

Earlier this month, Bruce Berkowitz’s Fairholme Capital Management LLC issued a news release indicating it owned junior preferred shares of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA)  and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) with a $2.4 billion face value.

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shares have seen increasing action as large investors are showing increased interest in the mortgage giants’ preferred shares.

Many analysts, including Johnathan Weil of Bloomberg, feel these investors have been lobbying for a privatization of the mortgage giants in order to boost their preferred share values.

Besides some argue that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)  shareholders deserve the same treatment as those of American International Group Inc. (NYSE:AIG), Citigroup Inc (NYSE:C), or any of the other banks that got money from the government.

However, Stephen Gandel, of Fortune feels in the case of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)  preferreds, Congress would have to pass a law that would specifically reinstate the dividends, directly and publicly rewarding hedge funds that have bet on turnaround.

Stephen Gandel argues that technically, even though Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) has paid the government 80 percent of what Fannie Mae received, still the mortgage giant owes the U.S. Government $117 billion. Besides there are lingering questions on whether there would be money left for private shareholders once the government is paid back.

Mortgage Giants’ Shares Up Over 500 Percent In Six Months

Shares of the mortgage giants Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)  were de-listed from the NYSE in 2010. Till recently, these shares have been traded for pennies. However, they are now up 607 percent and 523 percent in the past six months in over-the-counter transactions.

Bruce Berkowitz has been betting that the U.S. government would re-privatize both the mortgage giants. In a statement posted on his firm Fairholme Funds’ website, he predicted taxpayer money extended to the mortgage giants will be paid back in full. Hence Bruce Berkowitz argues that there should be equitable treatment for Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s taxpaying shareholders besides the banks and mutual funds.

The government put the mortgage giants into conservatorship almost five years ago, and deferred the hard work of creating a new, viable housing-finance market. Now that the government has been keeping the mortgage giants alive for so long, this act has created a sense of entitlement among shareholders who feel they should be treated like those who were bailed out at American International Group Inc. (NYSE:AIG).

However, Stephen Gandel of Fortune, argues that Berkowitz and other investors have showed up on the scene only in the last few months, after the mortgage giants have started minting money again.

Bruce Berkowitz has been credited for successfully playing out bailout trades in American International Group Inc. (NYSE:AIG), Bank of America Corp (NYSE:BAC).

However, Stephen Gandel of Fortune feels Bruce Berkowitz’s bail out bet has much lower odds of paying off.