Here comes the next big rip off by the banks -- mortgage origination fees. Banks normally charge what is called an "origination fee" -- an upfront payment to the bank supposedly for the paper work involved in doing the paperwork.

Just to give you an example, David Rapport, professor at the University of California Medical School had to pay $3500.00 up front to refinance his mortgage. A year ago, there was no fee! So banks are jumping in the refinancing market and charging outrageous fees just for writing a mortgage. Don't tell me that last year there was no fee and now for some magical reason banks have to charge sky high fees. The mortgage Bankers Association boosted its forecast for 2009 home loan originations by $800 billion to $2.78 trillion. This will give you a sense of the size of the market.

The Chapter 13 bankruptcy trustee in Pittsburgh accused Countrywide Financial, the poster child for lending practices that were disastrous for both investors and consumers (but worked out quite well for Angelo Mozilo), of losing or destroying more than $500,000 in checks between December 2005 and April 2007, and then charging already downtrodden borrowers for illegitimate late fees and legal costs.

Countrywide recently settled those allegations, and will pay $325,000. That's it. Is that a deterrent? Now that Countrywide is owned by Bank of America (NYSE: BAC), it's barely a rounding error, and certainly not something that will discourage Countrywide or other lenders from ripping people off.

Crime might not pay, but apparently it doesn't cost much either. Given the continuing flow of hugely negative publicity for Countrywide, it's hard to imagine that Bank of America isn't rethinking its plan to keep the Countrywide brand. Why would someone go a company synonymous with foreclosures, bait and switch, and corporate greed when they want a home loan?

Fannie Mae (NYSE: FNM) stock is declining this morning on news that mortgage application volume tumbled 22.6% during the week ending February 15, according to the Mortgage Bankers Association's weekly application survey. However, housing starts improved, which is helping to offset the sting of lower applications with the hope that future numbers will be better. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on FNM.

After hitting a one-year high of $70.57 in August, the stock hit a one-year low of $26.38 in November. This morning, FNM opened at $28.53. So far today the stock has hit a low of $28.05 and a high of $28.99. As of 11:00, FNM is trading at $28.80, down $0.18 (-0.6%). The chart for FNM looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in four months as long as FNM is below $45 at June expiration. Fannie Mae would have to rise by more than 57% before we would start to lose money.

The subprime mortgage mess took yet another victim as Bear Steams (NYSE: BSC) reported its first loss as a public company when it was forced to write down $1.9 billion dollars in investments related to subprime mortgages, according to Bloomberg. Analysts expected a much lighter hit. This loss is $1.2 billion more in write-downs than predicted.

Bear Steams also was hit harder than its chief rivals Citigroup (NYSE: C), Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER) on the trading side so overall revenue for the fourth quarter resulted in a net loss of $854 million or $6.91 per share. A year earlier fourth quarter results were a net income of $563 million, or $4 per share. Bear Stearns is the second-largest underwriter of U.S. mortgage bonds and it paid dearly for that lead role.

Bloomberg said the firm underwrote $7.3 billion of U.S. bonds, which was 17% less than last year and it managed just $1.18 billion in equity offerings, a 28% decrease. Yet Sanford Bernstein analyst Brad Hintz does see a rainbow at the end of this cloud. He told Bloomberg that he believes that we're heading into a recession and that's when traditional investment banking activities, such as mergers and acquisitions slow, while cuts in interest rates can help Bear's bond business. So Bear could benefit from the recession that's now looking more and more likely.

Since the loss was much greater than anyone predicted, expect the stock to fall today, but early trading made the stock price look like a yo-yo going up and down.

Be afraid, be very, very afraid. According to a piece from Marketwatch, subprime is -- to borrow a line from Monty Python -- not dead ... it's just sleeping. And when the subprime players come back, they will just look different. Maybe they'll be more responsible, less predatory, and easier to understand -- but maybe not.

According to some experts, the reason that subprime mortgages will return is that our country is dedicated to the idea of increasing home ownership. And the only real way to increase home ownership is to give mortgages to people who wouldn't traditionally qualify for them.

Perhaps it's a policy that needs some rethinking. As we watch record numbers of Americans struggling with increasing mortgage payments, we have to wonder whether they can keep their homes. There's something to keep in mind: A lot of these people would have been a lot better had they continued renting for now, and our national fixation on the idea of home ownership is a big part of what got them into this problem.

Don't get me wrong: I think home ownership is a wonderful thing, and absolutely something that should be encouraged. But in our religious zeal for creating the ownership society, we've forgotten something: If you can't afford a home, you're better off renting. The fact is that a lot of people bought homes who had no business doing that, and that's a big part of why we're in the crisis we find ourselves in now.