Hedge funds including Paulson & Co. Inc. are pushing Congress to abandon plans to liquidate Fannie Mae and Freddie Mac as investors buy up preferred stock that has long been considered worthless, according to people with knowledge of the discussions.

The improving finances of the two government-owned mortgage companies have kindled hopes among shareholders that they could be revived as private firms. Even as lawmakers from both parties and U.S. housing officials say that won’t happen, preferred shares of Fannie Mae have more than doubled in price since early March. They closed at $4.75 yesterday.

Paulson & Co. is among funds that met with members of the Senate Banking Committee and with staff members in the House of Representatives, said two of the people briefed on the matter. Claren Road Asset Management LLC and Perry Capital LLC also have lobbied, said those people and a third person. They spoke on condition of anonymity because the meetings weren’t public.

“There are funds that have taken very large positions, large hedge funds, and they are lobbying heavily,” Senator Bob Corker, a Tennessee Republican, said in an interview, declining to confirm any names. “I don’t give investment advice, but I don’t see how these are going to be worth anything down the road.”

Armel Leslie, a spokesman for Paulson, and Liz Gill, a spokeswoman for Carlyle Group LP, majority owner of Claren Road, declined to comment. Perry Capital general counsel Michael Neus didn’t respond to requests for comment.

Lobbying Blitz

The blitz of hedge-fund lobbying reflects how Fannie Mae and Freddie Mac’s return to profitability is complicating discussions about housing finance reform. Lawmakers in the House and Senate are working on bills that would wind down the two government-sponsored enterprises, which currently own or back about half of outstanding home loans.

To date, the Washington debate about housing finance has focused less on how to dispose of Fannie Mae and Freddie Mac and more on how to lure private investments back to the mortgage market. Also at issue is what share of mortgage risk, if any, the U.S. should assume in the future.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest. Their bad investments in risky loans in the run-up to the 2008 credit crisis led to a taxpayer bailout and enshrined them as symbols of excess in the housing market.

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