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UPDATE 2-Freddie Mac profit moves U.S. housing bailout further into black

* Freddie to send Treasury $10.4 billion next month

* Fannie, Freddie dividends put taxpayers up about $15.4 bln

WASHINGTON, Feb 27 (Reuters) - Freddie Mac said on Thursday it will soon send the U.S. Treasury a $10.4 billion dividend after posting a ninth straight quarterly profit, putting taxpayers further into the black on their bailout of the mortgage giant.

When it makes the payment next month, Freddie Mac will have paid about $81.8 billion in dividends in return for the $71.3 billion in support it received from the Treasury when it was bailed out during the financial crisis.

The nation's second-largest mortgage finance company earned a net income of $8.6 billion in the three months ended Dec. 31, paving the way for the payment. The income brought earnings for 2013 to $48.7 billion, its highest ever annual profit. It had net income of $11.0 billion a year earlier.

Freddie Mac and sibling company Fannie Mae have operated under federal conservatorship since 2008.

The duo, which had been teetering on the brink of insolvency, must now turn over any profits to the Treasury as dividends on the controlling stake the government took when it bailed them out. They cannot repurchase the government's share.

Last week, Fannie Mae reported record annual earnings and said it would ship $7.2 billion to the Treasury, putting taxpayers ahead on its bailout for the first time. Freddie Mac had broken even in the prior quarter.

When they make their latest dividend payments, taxpayers will have received about $202.9 billion for their support, compared to the $187.5 billion provided in bailout funds.

The companies, which own or guarantee 60 percent of all U.S. home loans, have been helped by a housing recovery that has lifted prices and kept a lid on defaults. Their return to profitability also allowed them to reverse write-downs of certain tax-related assets, leading to large one-time windfalls.

"The year and quarter were extremely strong," Donald Layton, Freddie Mac's chief executive officer, said on a call with reporters. "These levels of income are not sustainable," he cautioned.

No one expected the two companies to become profitable again so quickly, but when home prices surged in 2012, they were able to recover more money than expected on soured loans.

The sizable dividend payments have complicated a debate on the companies' future.

To avoid ever having a taxpayer-rescue again, the Obama administration and lawmakers on Capitol Hill have vowed to wind them down and revamp the housing finance system.

The Senate is working on a bipartisan bill that would ensure a government backstop for the market remains in place in times of crisis, an approach favored by the White House. A Republican-backed bill in the U.S. House of Representatives would limit federal mortgage guarantees more sharply.

The companies don't make loans but instead buy them from lenders and package them into securities they sell to investors. In doing so, they provide a steady source of mortgage funds.

Investors including Perry Capital and Fairholme Funds have sued the government, challenging the bailout terms that force all quarterly profits from Fannie Mae and Freddie Mac to be swept into the Treasury's coffer. A federal judge said on Thursday that Fairholme's case could move forward to the discovery phase.

Separately, housing and consumer advocates have filed lawsuits arguing that some of the profits should go into an affordable housing trust set up just before the crisis.

The litigation is expected to drag on for years, as is the congressional effort to remake the housing finance system.

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