Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) might not end up being dismantled by lawmakers after all. Clea Benson and Cheyenne Hopkins of Businessweek report that opposition from regional banks, hedge funds and others has given lawmakers pause regarding the two organizations’ future.

Fannie Mae

Changing Fannie, Freddie without disrupting housing market

President Obama and lawmakers on both sides of the aisle are calling for Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to be dismantled and replaced by a new housing system. But while the official stance is still dismantling the two organizations, lawmakers are trying to figure out how to change them without disrupting the housing market, which appears to be in recovery mode.

Democrats have indicated they’re worried about making a switch which liquidates both government-sponsored enterprises, thus requiring private entities to put their own capital at risk on home loans.

Fannie Mae, Freddie Mac too far gone to save?

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) came to the brink of collapse in the 2008 credit crisis. Since then they have taken $187.5 billion in taxpayer dollars and are considered by many to be too much of a political minefield to be able to be saved.

Currently the U.S. government has controlling stakes, but private investors like hedge funds Paulson & Co. and Perry Capital stand to lose a lot of money because of the preferred shares they have purchased. They’ve spent the last several months lobbying for lawmakers to recapitalize Fannie Mae and Freddie Mac.

Fannie, Freddie discussion shifts to practicality

Compass Point Research & Trading analyst Isaac Boltansky told Businessweek that previously lawmakers were concerned with the philosophical side of the debate. However, the problem now is more practical than that. They’re discussion whether they need to completely get rid of Fannie and Freddie or simply renovate it.

Both firms have been posting record profits as the housing market recovers from the worst recession it has seen since the 1930s. Almost all of those profits must be returned to the U.S. Treasury. So far, they have returned approximately $146 billion, which under the bailout terms, counts as a return on the government’s investment instead of a repayment.

Hedge funds sue government

Fairholme Funds and Perry Capital are two shareholders which have filed suit against the U.S., saying that the Treasury is essentially stealing the value in Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) from its shareholders. Lawmakers are being compelled to act quickly because of those lawsuits.