Prime Problems

This was on the calculated risk blog but it floored me and had I post it here. From the JPM conference call.

Analyst Mike Mayo: Can you elaborate more, you mentioned home equity might be a little bit better than you expected. But prime mortgage going from 48 basis points up to 91 base business points linked quarter, can you just elaborate more on what you're seeing there and why?

JPM: Mike, it's exactly the same risk factors and all the other things. It's high LTV, it's stated income, it's California , Florida , Arizona . I you agree with you they're track staggering numbers. It's just really hard for us to tell. Our current expectations of those losses can triple from here. We're prepared for that and we will reserve for that appropriately going forward.

Mayo: Prime mortgage losses could go from 91 basis points to 270 basis points?

JPM: Yes. We had 100 million a quarter and we could go to 300 million a quarter. Not next quarter. But if you look at current trends, maybe we're being overly conservative, that could be 300 million a quarter sometime in '09.

Yeah. If that is the case not only will you not have a 2nd half of 2008 rebound (I think only the most stubborn believe that now) but a rebound in the 1st half of 2009 would also be fairy tale thinking. 270 basis point losses from prime mortgages. Ouch!!