Ellington Financial LLC, run by Michael Vranos’s hedge-fund firm, plans to sell as much as $208 million in stock to buy mortgage-backed bonds after the biggest housing bust since the Great Depression knocked down prices.

Vranos, the former head of mortgage-securities trading at Kidder Peabody & Co., will use as much as 95 percent of the net proceeds to buy bonds backed by the types of home loans that helped cause the collapse of the U.S. real-estate market, according to a prospectus filed with the U.S. Securities and Exchange Commission on Nov. 30. Prices for some securities have recovered more than 50 percent since March after the collapse of the subprime-mortgage market in 2007 triggered a credit-market freeze and a 33 percent decline in home values.

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