The definition of “altruism” can be stretched for the best and the worst. And when it goes over really big bucks, we shouldn’t be surprised to find out that it is often for the worst. In this particular case it is useful to remember that last December marked a record year in term of Wall Street bonus bonanza which hit $23.9 billion, a 17% jump from last year’s bonus pool of $20.5 billion. And more than 100% increase in merely 9 years. So where are we getting at, would you ask. The problem here at stake is that there are rumors of a 120 billion bailout which would come at the taxpayers’ expenses.

… Christopher Cagan, director of research at First American CoreLogic, says rising mortgage payments on adjustable rate loans will force 1.1 million homeowners into foreclosure over the next 6 years. He estimates the cost of paying off the debt for those borrowers would be $120 billion… Larry Litton, whose company Litton Loan Servicing oversees the payments on 400,000 subprime loans, says on average it costs his company $16,000 to put one of its customers through a “loan modification” program if which borrowers get moved into loans with slightly lower rates. That would put the price tag of a nationwide program to assist troubled borrowers at $17.6 billion, using Cagan’s default estimates…. Rise notes that even a $120 billion bailout would not be without precedent. Economists estimate the federal government spent upwards of $150 billion to resolve the Savings and Loan Crisis of the late 1980s and 1990s…. (cnn.com/April 13 2007)

Not only what is occurring today is blatantly reminesent of the the S&L crisis there is also something even more troubling underneath the varnish: if we take for example the bankruptcy of New Century this also implies that we’d reward for failure many of the financial industry biggest names like:

1. Goldman Sachs Mortgage Company (GS) 2. Credit Suisse First Boston Mortgage Capital LLC (CS) 3. Credit-Based Asset Servicing and Securitization LLC 4. Morgan Stanley Mortgage Capital (MS) 5. DB Structured Products 6. Deutsche Bank (DB) 7. Bank of America (BAC) 8. UBS Real Estate Securities (UBS) 9. Lehman Brothers Bank FSB (LEH) 10. Countrywide (CFC) 11. Citigroup Global Markets Realty (C) 12. Residential Funding Corporation 13 SG Mortgage Finance 14. IXIS Real Estate Capital 15. Barclays Bank (BCS)

Goldman Sachs has emerged as the single biggest creditor of New Century, the American sub-prime mortgage lender. The same Goldman Sacks that broke Wall Street bonus record. Now it would be useful to mention that New Century Financial Corp., the largest subprime lender in bankruptcy still eyes has proposed paying at least $6.3 million in bonuses to 131 key employees. The bonus money includes $3.48 million for CEO Brad Morrice and seven company officials if they attract buyers for its main assets the New York Post reveals.

At this stage it is difficult to see through the fog of the next financial shenanigans that are being put in place but it wouldn’t be surprising to learn that the defunk lender could be a part of the nationwide bailout package.

Fraud, abusive lending crushes dreams, the mortgage mess has just began and is more likely the tip of the iceberg. A total of 32 percent of balances face rate adjustments over the next 12 months.

Payment resets will range between 1 percent and 3 percent of outstanding subprime balances in the other months between this May and November 2008, and then fall below 1 percent in December 2008, DiMartino wrote. Another 5 percent of subprime loans will hit reset dates after 2008, he said…. “Borrowers seeking to avoid these increased monthly payments by refinancing their mortgage loans may no longer be able to find available replacement loans at comparably low interest rates,” hedge-fund manager Carrington Capital Management LLC warned in a prospectus last month for bonds backed by subprime loans made by Fremont General Corp., whose lending unit is based in Brea…. Typical subprime home loans carry payments that are fixed for two or three years, and then go up even without an increase in benchmark interest rates. The performance of loans made in the past two years – which have had some of the earliest delinquencies and defaults ever – could worsen because of a rise in short-term interest rates combined with tougher lending standards that reduce opportunities for refinancing…

Bear in mind:

1) The risky sub-prime borrower is a myth: this is a convenient, yet misguided, conclusion to draw from the sub-prime mortgage debacle. In truth, sub-prime lending is just the latest example of how lenders have tarred entire segments of the population as credit unworthy through the mortgage industry’s own discriminatory, irresponsible — and now reckless — behavior.
2) Fannie and Freddie are still under tied control and remain a (big) worry according to the Office of Federal Housing Enterprise Oversight, as of April 11, 2007.

… “They dug an extremely, extremely big hole,” the director of the regulatory agency, James B. Lockhart III, said at a news conference. “They just basically ignored the infrastructure of these companies for years.” .. Fannie Mae chief executive Daniel H. Mudd received salary, stock and bonuses of more than $14.4 million in 2006, up about 25 percent from the year before…. However, both companies were profitable last year and had more capital than required, the agency reported…. Freddie Mac is “pleased that in its annual report to Congress, OFHEO recognized the progress Freddie Mac has made since completing its restatement in 2003,” Freddie Mac spokeswoman Sharon McHale said by e-mail. “Specifically, that the report’s summary of examination conclusions noted that we are strong in the areas of capital and asset quality, as well as credit and interest rate risk management, among other things.”…

We all remember too well that Enron was too described as a safe bet. Do not hold your breath… there are more rewards for failure to come. What desperate borrowers need is mortgage contracts that match what they can afford to repay. A billionaire bailout would truly mean that we may forget about reforming the industry.