Why are BofA and C buying up Alt-A and ARM MBS?
It Looks Like Citi And Bank Of America Are Already Gaming The System (C, BAC)
Courtesy of John Carney at ClusterStock
According to the New York Post, Citi and Bank of America have been aggressively buying up Alt-A and ARM mortgage backed securities, sometimes paying more than the going rate of around 30 cents on the dollar.
One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.
Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.
This raises serious questions about how the banks are using TARP funds. Instead of stimulating the economy by making new loans, B of A and Citi seem to be spending money to buy up old loans. That’s probably a bet that the Geithner plan will create renewed demand for MBS.
Source: DOUBLE-DIPPERS CITI, BOFA BUYING BACK LAUNDERED LOANS AT LOWER RATES, NY Post, by MARK DeCAMBRE
