Freddie Mac and Fannie Mae reported aggregate earnings of about $18.7 billion in FY2012, $12.1 billion of which was earned in the fourth quarter of the year. Since the two government-sponsored enterprises were placed in conservatorship in 2008 they have drawn support from the U.S. Treasury in the amount of $71.3 billion in the case of Freddie Mac and $116.1 billion in the case of Fannie Mae.

On Friday, September 5, 2008 Fannie Mae's stock closed at $7.04 and Freddie Mac's at $5.10. On Sunday the two mortgage giants were placed in conservatorship under the Federal Housing Finance Agency (FHFA). The following Monday their stocks closed at $0.73 and $0.88 respectively.

This is the historical background against which major shareholders in the two companies filed suit in Federal Claims Court on Monday, alleging that, while the 2008 takeover may have been beneficial to the economy, it was illegal, unconstitutional, and cost investors billions of dollars. According to Bloomberg, plaintiffs in the suite include Washington Federal, a Seattle bank, the City of Austin Texas Police Retirement System, and Michael McCredy Baker, identified as an individual shareholder.

Two more sets of facts to add to the above context. First, the companies respective stocks, long considered among the safer bets on Wall Street, had already lost much of their value before the government's seizure. Fannie's price on January 2 of that year, before most realized the breadth of the subprime crisis and the problems of the economy in general, was $40.20, Freddie's was $34.42.

Second, the 2012 revision in the stock agreement between the GSEs and the conservator virtually assure that the corporations can never recover. As of the first quarter of this year, rather than pay Treasury an annual dividend of 10 percent of its investment (a combined total of $19 billion in 2012) the GSEs will instead pay Treasury all of their positive net worth in excess of a $3 billion buffer. That buffer will be reduced by $600 million each year until 2018 when it will no longer exist.

While FHFA said this change was designed to end the cycle of the GSEs borrowing from Treasury in order to pay a dividend to Treasury, neither has borrowed for a year and the change guarantees the companies cannot build any cash reserves. In addition, the new agreement will require the GSEs to reduce their loan portfolios by 15 percent each year, up from 10 percent in the original agreement. While the two have paid an aggregate of $55 billion in dividends over the course of the conservatorship, the amount they owe to Treasury has not been reduced. While the government has a claim on all of the GSEs' profits, it does not carry its liabilities on its balance sheets.

According to Bloomberg, The lawsuit, which seeks $41 billion in damages, alleges that the financial status of the companies did not warrant the actions taken by the government. There are 12 conditions and criteria for a takeover outlined in the Housing and Economic Recovery Act (HERA) of 2008, the suit says, and none of these were satisfied. The plaintiffs claim that the government has forced the two GSEs to delist their stocks, terminate shareholder, meetings, assume additional subprime assets, and "accept tens of billions of dollars from the Treasury.

The stock prices of the two companies have been run up recently in anticipation that the companies might be restored to independence. Both stocks, in the $.80 range at the beginning of May, have spiked as high as $5 for Fannie and $5.44 for Freddie. There has been no indication from the government that they have any intentions for the GSEs other than an eventual wind down of their business operations. Several members of the House Financial Services Committee which have some of the oversight over the matter, have urged that the companies be placed in receivership and liquidated.