A Chart You Should See: Fannie and Freddie

NEW YORK (TheStreet) -- The saga of Fannie Mae (FNMA) and Freddie Mac (FMCC) is likely to go on for many years, but a good number of investors have already made killings on the government sponsored mortgage enterprises (GSEs).

Fannie Mae and Freddie Mac were taken under government conservatorship at the height of the U.S. housing market meltdown in September 2008. The GSEs common and preferred stocks remained publicly traded, but values plunged because dividends to non-government shareholders were suspended, and at that time, the outlook for the GSEs' long-term viability was grim.

The battle over Fannie and Freddie -- and the golden opportunity that was uncovered for institutional investors able to pony up significant cash and wait out a long battle, while assuming substantial risk -- was government's treatment of private investors. The GSEs were originally required to pay the U.S. Treasury 10% annual dividends on the government-held senior preferred shares, however, in August 2012, after the GSEs had returned to profitability and after they had stopped increasing their borrowings form the government, the bailout agreement was changed so that all GSE profits were paid to the government, in excess of minimal capital cushions.

There's no mechanism in place for Fannie or Freddie to repurchase any of the government-held preferred shares, and they can't rebuild capital anyway, because of the required dividend sweep.

Following their March dividend payments, Fannie and Freddie will have paid the government total dividends of $199 billion on government investments totaling $189.4 billion. Factoring in warrants that were handed to the government to acquire up to 79.9% of the GSEs common shares, Rafferty Capital Markets analyst Richard Bove on Tuesday estimated the government's return on its investment in Fannie and Freddie was $238 billion.

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