The change of fortunes in the housing market have led to solid profits at mortgage finance companies Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).

Fannie Mae FHFA Federal National Mortgage Assctn Fnni Me (FNMA)

But all of these profits flow into the coffers of the US Treasury under a federal diktat that requires the two companies to fork over profits as dividends on the government’s 80% ownership in the two companies.

Fannie Mae and Freddie Mac: Bailout a blip in the rear view mirror

In fact, with its dividend payment of $30.4B last December, Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) returned all of the $71.3B it received as a bailout from the government and paid over an additional $9B. Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) paid $8.6B, bringing its cumulative tally of the amount returned to taxpayers to about $113.9B, and within handshaking distance of the total bailout of $116.1B it received.

Fannie Mae will most likely repay the piffling balance amount of $2B plus change this quarter.

A lucrative dividend stream for the government

With the bailout repaid, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will continue to make dividend payments to the Treasury, provided they are profitable, becoming veritable cash cows for the government.

Last month, the country reported a record December budget surplus of $53.2B, aided by the payments from the GSEs and higher payroll taxes.

Other contenders

But now that taxpayers have been made whole, attention needs to be paid to the holders of the common and preferred shares in Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), who are clamoring for equitable treatment by the government in its reform involving the two housing mortgage companies.

More particularly, they would like to participate in the companies’ profits once taxpayers are paid in full.

Consumer activist and shareholder Ralph Nader held a round table discussion in Washington to draw attention to the need to help shareholders retrieve their investments in the GSEs. Current political thinking is weighing the winding up of the companies, though currently, there appears to be a political logjam on the issue.

“Housing reform will have an impact not just on shareholders, but on industry stakeholders and the broader economy,” Nader said at the discussion, which was organized as a part of his campaign with Shareholder Respect, a group created to empower Fannie and Freddie shareholders.

Hedge funds on the warpath

Hedge funds such as Bruce Berkowitz’ Fairholme Fund and Perry Capital are embroiled in litigation against the government and contend that its appropriation of all of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) profits is unjustified.

Theodore Olson of Gibson, Dunn & Crutcher LLP, which represents Perry Capital LLC, said at a conference last week that the Treasury “has effectively nationalized the companies and ensured that they will never return to private ownership” using steps that are “plainly unlawful.”

Non-profits want theirs, too

Low-income housing groups led by the Right To The City alliance have claimed in a lawsuit that the government should honor its commitment in the original bailout to set aside a small portion of the profits to be made by Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) for funding a trust that will provide affordable housing to low-income and homeless persons.