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“Payment Woes Worsen on Riskiest Mortgages,” from yesterday’s Wall Street Journal, reveals the lastest data on Alt-A loans: defaults as a percent of loans outstanding have doubled in the past 12 months. It’s not just subprime, as CPAs on the front lines of this fiasco can testify.

With the growing risks in the mortgage market, Moody’s is finally waking up to smell the napalm. It’s only a matter of time before ratings downgrades, from Moody’s and the like, begin to weaken the market for CDOs even further. This is a very real risk to the housing market and the economy as CDOs have been the biggest buyers of mortgages over the past few years. Waning confidence in this market is already exacerbating the spreading credit crunch and as it worsens credit will get even tighter.

The bottom line is that the mortgage market mushroom cloud is going to cause massive ripples throughout the financial system.

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