The Subprime Gift that Keeps Giving

Posted by: Mara Der Hovanesian on August 26

A lot of overnight sensation subprime lenders imploded after the speculative housing market bubble burst. But many of the biggest subprime players that not only made oodles of profits during the boom are also still around—and benefitting handsomely from federal bailout money.

According to a new Center for Public Integrity analysis of public records, almost two dozen firms that “fed off the subprime lending frenzy that devastated the banking system are set to receive billions in taxpayer dollars through a federal government program designed to stem foreclosures.”

The Washington think tank says that of the top 25 participants in the Home Affordable Modification Program (HAMP), at least 21 were heavily involved in the subprime lending industry. The majority specialized in servicing subprime loans, but several firms both serviced and originated the loans.

“As foreclosures continue to increase, the Obama Administration is planning to spend up to $50 billion in federal bailout funds to help as many as four million homeowners stay current on their mortgages,” according to Center for Public Integrity Executive Director Bill Buzenberg. “Much of this money is going directly to the same financial institutions that helped create the subprime mortgage mess in the first place.”

The list of subprime lenders participating in HAMP are slated to receive more than $21 billion in taxpayer funded incentives. Many of these subprime lenders were the top 25 originators of the high-interest loans which accounted for nearly $1 trillion worth of high-priced loans during the peak of the subprime market, the Center says.

Bank of America, through its ownership of Countrywide (formerly the nation's largest lender), may receive up to $5.1 billion in incentive payments. Including subsidiaries that came over from its purchase of Merrill Lynch, Bank of America may collect as much as $6.9 billion.

Next on the list, receiving up to $2.7 billion in incentives, is JPMorgan Chase, which ranked No. 12 on the Center’s subprime lender list. Including subsidiary EMC Mortgage Corp., JPMorgan could collect as much as $3.4 billion. Wells Fargo, which ranked No. 8 on the Center’s subprime list, could collect as much $3.1 billion including its Wachovia subsidiaries.

Adding insult to injury, the center reports that at least two firms that earlier settled charges of illegal collection practices brought by federal regulators; another was placed under federal supervision before voluntarily surrendering its bank charter.

Nice work if you can get it.

Reader Comments

Karl

August 26, 2009 05:10 PM

I'll bet the CEO's, & other executives of these banks are all LAUGHING every night as they head home in their Bentleys & their Rolls Royces. They're basically being REWARDED for the BIGGEST FRAUD ever committed on U.S. soil!!! Welcome to America- IN FRAUD WE TRUST!

PJL

August 26, 2009 06:18 PM

Who wants to bet me that many of these subprime lenders and their top management also paid no taxes on their profits as well?

PJL

August 26, 2009 06:20 PM

Who wants to bet me that many of these subprime lenders and their top management paid no taxes while they earned their huge profits? Anyone?

Earthling

August 26, 2009 09:44 PM

The ruling kleptocracy is fleecing the taxpayer to generously reward themselves and the barons of Wall Street. These swindlers should all be chained to a dungeon wall, not pocketing billions more from the public purse.

John McLeod

August 27, 2009 08:02 AM

Hi Mara,

Nice to see you haven't mellowed since that amazing BW cover with the snake around the house. We've just put up a new transcript of AEI's subprime seminar II (Sep '07) with lots of new insight into the origins of this mess.

Cheers, John
http://HousingDoom.com

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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