Why did Citi not want the interest? They think everyone is a deadbeat. Heck I would work 3 jobs if needed to keep my home. Of coarse I will not have to do that. I feel Citi is a whore for servicing my loan and Freddie is the pimp.
I think F&F are trying to improve their loan portfolios by encouraging banks to sell them good loans. If they do that often enough, with taxpayer money, they can claim that the percent of bad loans has gone down.
In addition, Citi gets a cash multiplier by selling the loan. For every $100 cash they have, they get to loan $1000, or some such.
This was innocuously called "monetizing the debt" when the Fed did it for Europe a couple of days ago.