“That mooing sound you hear in the distance is a cash cow. There has been quite the transformation in the market’s perception of the US mortgage finance groups Fannie Mae and Freddie Mac, which were taken over by the federal government at the height of the financial crisis in 2008.

“From being a money sink, draining the US Treasury to the tune of $187.4bn so far, the pair suddenly look like they will make money for the taxpayer. Investors have piled in to the groups’ defunct preferred shares and common equity, taking a (very) long-shot punt that they might somehow get to milk the cow, too.

“Small community banks are weighing in to demand a reversal of the 2008 wipeout of preferred shareholders, adding a further element of uncertainty to the task of reforming the US mortgage market.

“For mortgage investors, resolving the future of Fannie and Freddie is vital to settling the US government’s role in the housing market, itself a prerequisite for the re-emergence of a private mortgage-backed securities market.”

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Read full Financial Times article here