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New group wants investors protected in Fannie, Freddie wind-down

A stands outside Fannie Mae headquarters in Washington February 21, 2014. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - A new organization called the Coalition for Mortgage Security launched a campaign on Monday calling for winding down Fannie Mae and Freddie Mac in a way that does not harm the shareholders of the bailed-out mortgage companies.

The material used in the campaign mirrors the arguments of hedge funds battling the U.S. government over the value of their shares in Fannie Mae and Freddie Mac preferred stock. The group, which describes itself as a bipartisan, grassroots organization, declined to comment on its funding sources. It named Ken Blackwell, a senior U.S. housing official under President H.W. Bush, as its director.

The organization is likely attempting to sway lawmakers on the Senate Banking Committee, who will soon begin considering a major proposal to overhaul the housing finance market.

It said it was "committed to reforming our housing finance system in a way that benefits and fairly treats current and future homeowners, taxpayers, and investors across the country."

After Fannie Mae and Freddie Mac were rescued by the government in 2008, hedge funds began snapping up their shares.

Under a change in their bailout terms imposed by the government in 2012, Fannie Mae and Freddie Mac are required to sweep their entire profits into the U.S. Treasury. Previously, they had been required only to pay a dividend of 10 percent to the government for its controlling stake.

A number of private investors, including hedge funds Paulson & Co and Perry Capital LLC, have sued over the change.

The Coalition for Mortgage Security also criticized the shift.

"The rule of law is the basis for American capitalism and must be acknowledged and respected in order for properly functioning capital markets," the group said. "The rules of the game cannot be changed in the middle of an inning."

(Reporting by Margaret Chadbourn. Editing by Andre Grenon)