Values of mortgage related securities never truly represent their fundamental values. Technical factors, such as liquidity and leverage, can further distort the values. Worldwide large banks have lost more than $500 bil in mortgage related securities and the bulk of it falls into non agency mortgage securities. These banks have exposure to around two thirds of the non- agency mortgage market. So, other non financial institutions, such as hedge funds, have take nearly $250 bil too. Obviously, this is not the end the games. Many experts believe the crisis is just half way through. In their sense, the cap of the mortgage loss will $1.5 tril or even approach $2 tril. Let's take a look at the housing market fundamentals. The two GSEs guarantee around 5 - 6 trillion mortgage market and bulk of it is agency mortgage. While the WS banks cover the rest 5 to 6 trillion mortgage market, which includes Alt-A, and subprime. They are two separate worlds.
Prime agency mortgage historic delinquency rate is around 4%. As shown in the chart, the historic high was 6% and historically loss/charge-0ff rate was 2%. While subprime mortgage delinquency rate is around 20% with loss severity around 50%. Forward looking, we can assume the loss from agency mortgage might be lower than 150 billion while non-agency mortgages might below 700 billion. So the real loss will cap around $85o bil, a level comparable to the loss in S&L crsis.