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Some of the hedge funds that made fortunes in the housing-market crash are now betting on the recovery of Fannie Mae and Freddie Mac, the government-controlled mortgage giants, the Wall Street Journal reported today. Paulson & Co. and Perry Capital LLC are among a handful of hedge-fund firms that have bought preferred shares in Fannie and Freddie, which collapsed in value in 2008 after the companies were taken over by the federal government. These firms are hoping Fannie and Freddie's recent return to profitability on the back of a recovering housing market will lead eventually to the companies being able to make payments to preferred shareholders.

Ally Financial Inc. moved closer to repaying a U.S. bailout as the auto lender reached agreement with creditors of its bankrupt mortgage unit, Bloomberg News reported yesterday. While financial terms of the accord were not included in a statement yesterday from Detroit-based Ally, the company said that it will be insulated from private claims against its Residential Capital LLC mortgage arm, once ranked among the largest originators of subprime mortgages. The sum will be kept confidential until next week, when debtors are expected to support the plan in court, Ally said. ResCap’s bankruptcy has been one of the biggest sticking points as Ally seeks to sell shares to the public and pay back a $17.2 billion taxpayer rescue received during the global credit crisis. Ally Chief Executive Officer Michael Carpenter has been selling assets to raise money and said this month that an initial stock offering remains the best option.

Sen. Elizabeth Warren (D-Mass.) said that regulators’ longstanding policy of allowing Wall Street firms to settle lawsuits without requiring them to admit to wrongdoing may undercut the regulators’ ability to crack down on financial fraud, the Wall Street Journal reported today. “[I]f a regulator reveals itself to be unwilling to take large financial institutions all the way to trial—either because it is too timid or because it lacks resources—the regulator has a lot less leverage in settlement negotiations and will be forced to settle on terms that are much more favorable to the wrongdoer,” Warren wrote in a letter to the heads of the Justice Department, Federal Reserve and Securities and Exchange Commission. In her letter yesterday, Warren asked the heads of the three agencies for copies of any research and analysis they have performed on the costs to the public of settling an enforcement action without requiring an admission of guilt. She said that a fourth regulator, the Office of the Comptroller of the Currency, already told her it does not any internal research or analysis on the matter.

Goldman Sachs Group Inc. won dismissal of bond insurer ACA Financial Guaranty Corp.’s fraud lawsuit over a collateralized debt obligation known as Abacus, Bloomberg News reported yesterday. A New York state appeals court in Manhattan yesterday ordered the complaint against Goldman Sachs dismissed, overturning a lower-court ruling that had allowed the case to proceed. ACA claimed that New York-based Goldman Sachs and hedge-fund firm Paulson & Co. conspired to induce ACA to provide financial guaranty insurance for the Abacus transaction and deceived the insurer into believing Paulson was a long investor when in fact it was taking a short position. The appeals court said that ACA could have uncovered Paulson’s actual position, “but apparently chose not to.”

Arcapita Bank BSC, an Islamic-compliant fund manager, will consider a revised offer for a bankruptcy-exit loan from Fortress Credit Corp. to compete with a proposal from Goldman Sachs International, Bloomberg News reported yesterday. Both loan offers of $350 million would fund Arcapita’s exit from chapter 11 protection, Fortress said in court papers filed yesterday. Fortress said that it had been in talks since last year to provide an exit loan to Arcapita and was disappointed that the company and its creditors’ committee chose the Goldman Sachs offer.

The House Financial Services Oversight and Investigations subcommittee will hold a hearing on Wednesday at 10 a.m. ET titled “Who Is Too Big to Fail: Does Title II of the Dodd-Frank Act Enshrine Taxpayer-Funded Bailouts?” The witness list includes Prof. David A. Skeel of the University of Pennsylvania Law School, Dr. John B. Taylor of Stanford University, Josh Rosner of Graham Fisher & Co. and Michael Krimminger of Cleary Gottlieb. For more information, please click here: http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=33…

Creditors of bankrupt Residential Capital LLC are nearing a deal to settle billions of dollars of claims against the mortgage lender's parent, Ally Financial Inc., a development that prompted a delay in a much-anticipated report on ResCap's failure, Reuters reported on Friday. A mediator overseeing talks between Ally and ResCap creditors asked that an independent examiner postpone his report on claims that Ally should be held responsible for up to $25 billion of ResCap liabilities, according to a court filing. That report was expected to be published last week, but the examiner's attorney said in a court filing on Friday that the report will now be published today. Creditors of ResCap are pursuing billions of dollars of cash that Ally had raised by selling its international business and planned to use to repay the remaining $11 billion of a U.S. government bailout.

Rating firms' controversial business model looks set to escape wholesale changes as regulators struggle to agree on an alternative, the Wall Street Journal reported today. Lawmakers told the Securities and Exchange Commission nearly three years ago to shake up the bond-rating industry's "issuer pays" business arrangement, where clients pay firms such as Standard & Poor's Ratings Services and Moody's Investors Service for their letter grades. Very little has changed as a SEC report that was widely expected to announce regulatory changes arrived six months late—and proposed more discussion rather than an overhaul. At an all-day meeting tomorrow, the agency is seeking advice from 26 experts, including S&P President Douglas Peterson and Kroll Bond Rating Agency Inc. Chairman and Chief Executive Jules Kroll. The SEC declined to comment on the delayed report or how long it might take to make any changes to the issuer-pays model for rating deals backed by mortgages and other assets.

Freddie Mac, the government-controlled mortgage financier that’s returned to profitability after requiring a taxpayer-funded rescue during the credit crisis, plans to start selling home-loan bonds without U.S. backing from its holdings as rising property prices help boost their value, Bloomberg News reported yesterday. Freddie Mac is offering $1 billion of non-agency securities from its $121.5 billion portfolio this month, Freddie Mac said. The McLean, Va.-based company expects to sell another $1 billion in June and may offer as much as $5 billion in all this year.

As shareholders consider whether to press for splitting JPMorgan Chase’s top two roles, CalPERS, the big California public pension plan, aims to vote in favor of a nonbinding proposal to split JPMorgan’s chief executive and chairman roles, both currently held by Jamie Dimon, the New York Times DealBook blog reported. To Anne Simpson, the pension plan’s director for corporate governance, the move is rooted in the belief that systemically important institutions need plenty of oversight. And it is a conviction that developed even before the country’s two biggest proxy advisory firms—Institutional Shareholder Services and Glass, Lewis & Company—recommended that shareholders vote in favor of a split.