Alt-A: The Next Wave of Write-downs

"Alt-A" Mortgages: Better than subprime, but nowhere near prime. These mortgages, much like their subprime relatives, were riddled with shady fine print. These loans will likely enter the limelight as soon as people begin to recognize the velocity at which these loans are "souring" (see chart below). A recent article in the Economist brought these mortgages back to my attention after I first read about them in the Wall Street Journal a couple of months back. Moody's recently quadrupled its loss projections for this portion of the MBS market which triggered a massive sell-off. David Watts of CreditSights research firm estimates that losses could reach $150 billion, while Goldman Sachs sees potential losses amounting to $600 billion. Just to give you an idea, this is potentially half of the total losses (over $1 trillion) that have already been written down by domestic banks. If that's not bad enough, try factoring in the deteriorating economy. As unemployment rises, so will delinquencies. Write-downs will follow shortly there after. I understand that this is a grim post, but by this weekend I hope to have a full investment outlook posted (probably in pieces), so we can see exactly where the profitable opportunities are hiding. Below I have included a chart from the Economist that shows this exponential increase in delinquencies.