Citi (C) And Bank of America (BAC) Buying Distressed Mortgages

Investing

Published: March 25, 2009 8:13 am

Last Updated: March 25, 2009 1:29 pm

Secretary Tim Geithner designed a plan to assist the largest banks to rid themselves of toxic mortgage assets, but now Citigroup (NYSE: C) and Bank of America (NYSE: BAC) are aggressively buying up those same securities in the secondary market, according to The NY Post.

Both Citi and Bank of America each have received $45 billion in federal rescue cash to help prop up the economy and increase their lending to businesses. But the banks’ purchase of mortgage-backed securities, including some that use alt-A and option ARM as collateral, is having some traders question why they are buying those bad assets. Alt-A and option ARMs are widely recognized as the next mortgage type to see large increases in defaults.

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