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) -- Some $37 billion worth of preferred shares of

Fannie Mae



Freddie Mac


were effectively wiped out when the U.S. Treasury Department took control in 2008, but at least three hedge fund investors believe the securities still have value.

That's if they can get anyone to agree on what will happen next.

"For a constituency that's as big as $37 billion, you would think there are people that have suffered horrendous losses and are adamant about the wrongs that have been committed here," Michael Kao of Akanthos Capital Management in Woodland Hills, Calif.

Prior to the financial crisis many U.S. regional banks held Fannie and Freddie preferred shares because their implicit government backing allowed the securities to pass muster with bank regulators. But in 2008 -- as losses on mortgages piled-up --Fannie and Freddie announced they would halt dividend payments and the value of those shares quickly dropped off a cliff.

Paul Merski, chief economist at the Independent Community Bankers of America, says the lobbying group is working on getting some recompense for its members, though one mortgage industry lobbyist says he believes the ICBA, for whatever reason, "hasn't been putting much muscle" behind its efforts.

Merski believes several investor class action cases are underway against the government over the decision to halt the dividend, but he couldn't name one and TheStreet was unable to learn of any.

One lawsuit announced Thursday came from Judical Watch, which calls itself a conservative non-partisan educational foundation. Judicial Watch announced it had filed a motion in a Washington D.C. U.S. District Court to try an get the Federal Housing Finance Agency (FHFA) to release documents related to its decision to place Fannie and Freddie into conservatorship. An FHFA spokeswoman had no comment.

Judicial Watch files politically-charged lawsuits on a regular basis. It has typically gone after Democrats, though it once sued former Republican vice president Dick Cheney. The group's list of 10 Most Wanted Corrupt Politicians on its website lists eight Democrats, including President Obama, Rahm Emmanuel, Barbara Boxer and Nancy Pelosi, and two relatively minor Republicans.

The hedge fund managers, however, argue the best solution for preferred investors is to revive the shares and all cite Fannie and Freddie's improving balance sheets in making their case.

Kao and Derek Pilecki of Gator Capital Management in Tampa, Fla., both make certain pragmatic-sounding political arguments that going back to some version of a public-private model is the least objectionable of several bad options.

Separately, John Hempton of Bronte Capital has a plan to gradually phase out the Government Sponsored Entities (GSEs) that he believes would pay back the government and give him some nice gains on his preferred equity stake.

The fund managers' proposals for Fannie and Freddie and degree of conviction vary slightly from one to the next.

Kao, who earned 268% returns for Akanthos in 2009 by buying

General Motors

(GM) - Get Free Report

shares for pennies on the dollar, believes GM's initial public offering could provide a template for an IPO of Fannie and Freddie, in which some of the government's debt and/or preferred stake could be converted to equity in a reorganized company.

Pilecki, a former interest rate risk analyst at Fannie Mae, says Fannie and Freddie preferred shares are his largest positions, accounting for some 5% of his portfolio.

"The new business they're putting on is profitable and I also think some of the charges they've taken in the past have been overly conservative," he says.

Hempton believes the government exit strategy for Fannie and Freddie should be to force them to gradually increase the price they charge for mortgage guarantees until they eventually lose all their customers to the private sector. As the GSEs are phasing themselves out of existence, Hempton believes they would earn enough money to pay back the government.

However, Hempton argues this is not the plan favored by big Wall Street banks like Citigroup

(C) - Get Free Report

, Bank of America

(BAC) - Get Free Report

, JPMorgan Chase

(JPM) - Get Free Report

and Goldman Sachs

(GS) - Get Free Report

. Instead, he says Wall Street favors a plan to create several mini versions of Fannie and Freddie that compete with each other to offer low-priced government guarantees on mortgage backed securities.

"This is a gift to Wall Street of gargantuan proportions, and so far it looks like Wall Street's winning the lobbying," Hempton says, "It's stupid, it's inane, but Wall Street is winning the lobbying."

If Wall Street succeeds, Hempton reasons, the preferred shares are worthless.

"Because effectively you dismantle Freddie and Fannie at maximum loss, which really is maximum transfer to Wall Street--and I lose. And if they decide to do it the other way which I think is perfectly rational, I win. And so does the taxpayer, anyway: I'm on the taxpayer's side here."

Needless to say, with the preferred shares trading for pennies on the dollar, the hedge fund managers are in the minority in their view.

Bose George, analyst at Keefe Bruyette & Woods, sees little hope Congress would sanction a return to Fannie and Freddie as shareholder-owned vehicles.

"On a fundamental basis we don't see any value," George says.

But even George won't say he sees no point in trading the shares for a while.

"This will be multiple years before we get this resolved. In the meantime, there are probably going to be lots of ups and downs and so if you have a security that's so close to zero as it is and with a lot of volatility it might work," he concedes.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.