Yields on agency mortgage securities compared to U.S. Treasuries approached a five-month high today. Spreads rose to 215 basis points in intraday trading today, the highest level since early Mach 10, just prior to the crisis that leveled Bear Stearns, according to data compiled MKM Partners analyst Mike Darda. Over the past drbrtsl several weeks, the spread has been edging toward the 22-year high of 238 basis points set in March.

The so-called “agency mortgage bonds” amount to a $4.5 billion market guaranteed by federal agency Ginnie Mae or government-backed Fannie Mae and Freddie Mac. The rise of the spreads is widely viewed as a sign of stress in the financial system. More specifically, many believe that despite government moves to shore up Fannie and Freddie, the odds of the guaranteed bonds defaulting has increased.

Over the weekend the Senate overwhelmingly passed a the mortgage bailout bill that includes a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac, grants to states to subsidize local real estate markets and extends government protections for refinancing troubled mortgages. The legislation amounts to one of the most far-reaching government expansions in the real estate and financial markets in decades. Surprisingly, there has been very little public discussion of the details.

So what does the 700 page bill do? We’re not sure anyone knows since hardly anyone—perhaps no one at all—has read the entire thing or had a chance to evaluate how it will interact with existing laws. Here at DealBreaker we’ve discerned a few of the lowlights at Bailout Bill. (If you want to read the bill, click here and God bless you.) After the jump, we run through them.

A week ago the Wall Street Journal reported that the sheriff of Philadelphia was refusing to conduct auctions for foreclosed homes. It’s kind of civil disobedience from a government official. And his move prompted a sweeping reform scheduled to go into effect this week that will require lenders to participate in a court-sponsored “reconciliation session” before they can foreclose on a property.

This will no doubt reduce the foreclosure rate in Philadelphia but shouldn’t it also expand the delinquency rate? For a variety of reasons, Philadelphia missed out on much of the housing boom and so isn’t at the forefront of the mortgage mess either. But this move should help Philadelphia catch up with the rest of the country. If the bank can’t foreclose, that’s certainly an incentive to stop paying your mortgage when money gets tight.

He’s Taking Law Into His Own Hands To Help Broke Homeowners [Wall Street Journal]

It’s not just the Lone Star Funds going long mortgage companies. This morning Bradford & Bingley announced plans to raise 400 million pounds by selling a stake to buyout firm Texas Pacific Group. It’s part of the now familiar dance for finance companies, where they reveal craptacular earnings and attempt to soften the blow by revealing they are shoring up their balance sheets with an injection of new capital. So yeah, B&B also revealed that profits halved in the first four months of the year.

B&B had planned to sell a stake at around 82 pence per share. TPG is paying just 55 pence, indicating that investment appetite for the UK largest buy-to-rent mortgage company is still scarce. The deal is mightily dilutive for existing shares, which were down 23 percent this morning.

B&B sells 23 pct stake to TPG, redraws rights issue [Thompson Financial via Forbes]

Even before the deal closed on Friday, JP Morgan Chase had already spun off one unit of Bear Stearns—Bear Stearns Residential Mortgage Corporation, commonly known as Bear Res. On Friday the invaluable Housing Wire reported that said that an affiliate of Lone Star Funds had acquired the Bear Stearns’ wholesale and correspondent lending operation. According to an internet memo the majority of employees of Bear Res will be offered jobs by Lone Star and its affiliates.

What JPMorgan Didn’t Get: Lone Star Picks Up Bear Res [Housing Wire]

The most jarring Bear Stearns story of the day isn’t in Kate Kelly’s amazing piece of reporting. It’s on National Public Radio, of all place. Today they are telling the story of a woman called Tracy Warren, who worked for a quality-control contractor that reviewed subprime loans for investment banks before they were sold off on Wall Street.

Warren says her biggest client was Bear Stearns. But more importantly, she says that her supervisors at Watterson-Prime, a company which performed loan audits for investment banks, regularly ignored her warnings.

“The QC reviewer who reviewed our kicks would say, ‘Well, I thought it had merit.’ And it was like ‘What?’ Their credit score was below 580. And if it was an income verification, a lot of times they weren’t making the income. And it was like, ‘What kind of merit could you have determined?’ And they were like, ‘Oh, it’s fine. Don’t worry about it.’”

She says that about 75 percent of loans that should have been rejected were still put into the pool and sold to investment banks. Ladies and gentlemen, aim your lawsuits here.

Auditor: Supervisors Covered Up Risky Loans [NPR]

Update: Tanta at Calculated Risk wonder if Warren simply didn’t understand that different mortgage pools involved different types and levels of risk.

The departures of two senior Bear Stearns executives from JP Morgan Chase may signal problems with the value of the Bear Stearns mortgage portfolio. Over the weekend Henny Sender of the Financial Times reported that Jeff Mayer and Craig Overlander, the two men who had been in charge of the fixed income arm of Bear Stearns and were named vice-chairman of JP Morgan’s investment bank shortly after the acquisition of Bear was announced, were headed out the door.

Sender’s report cites “question” about the value of the mortgage book, and is written in a weird negative way. The men are leaving for reasons “not exclusively” related to the mortgage book. Which apparently means “but pretty much” related to the mortgage book. At least that seems to be the favorite read of most people watching the move.

Bear duo quit new JPMorgan jobs [Financial Times]

There’s no question that the United States is a nation of financial illiterates, and that this contributed to the decisions of millions of Americans to run up credit-card debts, buy houses they couldn’t afford, purchase college educations they can’t pay for. But does it follow from our widespread illiteracy that education would help us avoid those mistakes?

What a wild ride we’ve had with Countrywide today. Shares of the home lending behemoth dropped following reports this morning from the Los Angeles Times that the company was on the verge of bankruptcy. And they shot back up this afternoon as word leaked that Bank of America is in talks to buy Countrywide. (Careful DealBreaker readers read it here first, and now the Wall Street Journal is reporting it.)

Even earlier today, CNBC’s Charlie Gasparino—shirt sleeves deceptively intact—was reporting on the “governing philosophy” that created the mortgage mania which in turn birthed our mortgage meltdown and, at the very least, exacerbated the broader credit crunch. He had discovered that back in 2003 Countrywide Angelo Mozilo had given an speech to the Harvard Joint Center for Housing Studies and the National Housing Endowment calling for loosened credit ratings standards and a reduction, or perhaps an end, to downpayment requirements for homebuyers. This was the speech, of course, that informed the front page National Mortgage News story we unearthed for you last Friday.

But don’t blame Mozilo. He was only responding rationally to the incentives created by that all to compassionate monster, the state. Long before the Bush administration attempted to rebuild Iraqi society, it set out to rebuild American society. Although it went under the banner of “compassionate conservativism,” the Bush adminsitration’s call for an “Ownership Society” was, at its core, central economic planning on a colossal scale. The market had failed to make enough Americans homeowners, and so the Bush administration set out to “expand homeownership.”

More after the jump.