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M&T Bank (MTB) announced today that their earnings in the first quarter will be hurt by deterioration in their Alt-A mortgage portfolio. This follows on the heels of a similar confession by Fulton Financial (FULT).

But let’s look at the trend here. The bad news started with subprime loans. It is now undeniably creeping into Alt-A. So the credit debacle is working its way up the loan quality ladder, albeit in slow motion.

In addition, the problem mortgages began with the lowest quality originators, i.e. New Century (NEWC) and Novastar (NFI). It should be noted that M&T is a larger and much better respected financial institution. With over $40 billion in loans, M&T is just about the same size as New Century, Novastar and Fulton combined. So the loan problems are now spreading up the lender quality ladder, as well.

The trend is clearly pointing to increasing problems in higher quality loans at higher quality lenders. This is a problem that is not about to go away any time soon.

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