Then again, Standard & Poor's on Monday raised its outlook for its sovereign debt ratings for the United States to "stable" from "negative," in part because of the huge contribution of GSE dividends toward lowering the federal deficit. So President Obama and members of Congress will be weighing a potential loss of revenue against a potential loss of political support among investors holding shares in Fannie and Freddie.

When discussing prospects for investors in Fannie and Freddie in litigation against the government, George wrote "the companies are specifically chartered by the federal government and we think the courts will give the government far more deference in determining whether or not to pay a dividend to preferred shareholders even if the companies have paid back the taxpayers."

Senators Bob Corker (R., Tenn.) and Mark Warner (D., Va.) are drafting a bill to dissolve Fannie and Freddie over a five-year period, while offering some consideration to private shareholders, according to a Bloomberg report filed last week.

A likely series of class-action lawsuits will complicate negotiations in Washington for the reform of the U.S mortgage finance market.

Another Analyst Warns Investors

FBR analyst Edward Mills in a note to clients on Tuesday discussed his firm's analysis of the "of the guaranteed book of business of Fannie Mae and Freddie Mac to determine what economic value would be available to non-government security holders."

Mills concluded that "under almost all scenarios, the cash flows from the guarantee book would barely cover the principal owed to the U.S. government; as such, we continue to believe little, if any, economic value will be given to nongovernment securities."

"We see the Corker-Warner bill, with its five-year sunset provision, as the foundation for the legislative discussion," Mills wrote, but added "the economics of the books today and a political environment that does not favor transferring earnings to the non-government shareholders."

The political environment also doesn't favor a settlement that would apply subsequent payments by Fannie and Freddie toward "paying down the principal balance on the senior preferred shares," according to Mills.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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