A group of hedge funds and private equity companies is preparing a proposal to take over large parts of Fannie Mae and Freddie Mac, in an attempt to end a bitter dispute with the Treasury, which has controlled the US housing finance agencies for five years.
The plan is being pitched as a way to bring tens of billions of dollars of private capital into the US mortgage market and to speed housing finance reforms that remain bogged down in Congress.
The investor group includes holders of more than half the $34.6 billion of preferred shares in Fannie and Freddie, who have been fighting to restore some value to the shares after the terms of the government conservatorship rendered them worthless.
Mishandling the future of the two agencies, one of Washington's biggest pieces of unfinished business from the 2008 credit crisis, could jeopardize America's housing recovery and rattle the wider economy as they guarantee 85 per cent of US mortgages.
Numerous plans to reform Fannie and Freddie have circulated among politicians, investors and academics but the latest proposal is likely to spur intense debate.
(Read more: Fannie, Freddie making billions—why shut them down?)
Their plan will face several hurdles including widespread political hostility to keeping Fannie and Freddie alive, Washington's suspicion of Wall Street and the Treasury's reluctance to surrender what has become a valuable source of cash.
Holders of the preferred shares include Claren Road Asset Management, Fairholme Funds, Blackstone's GSO arm, Paulson & Co and Perry Capital, according to people familiar with the matter.