The ABX.HE indices were pasted again today. So were the CMBX (commercial mortgage-backed paper). There’s certainly some fear out there. Of course, the ABX.HE indices are based on second mortgages, typically one imagines from 80/20 structures. Unlike the first mortgages, seconds are often a total loss when a foreclosure occurs, which explains why some of the lower quality indices are trading down in the 50s.

Also, there’s a lot of quiet talk about the rising default rate in the so-called Alt-A mortgage pools. These are loans made to borrowers with prime credit scores, but which do not conform to the Federal agency guidelines. This is where the “investors” are. And they are starting to walk away.