If you were watching 60 Minutes last night, you saw a segment about the next wave of mortage defaults that is coming. That link takes you to an online video of their segment, which I urge you to watch. This is the best concrete evidence I've seen so far that validates what many of us here at the Nolan Chart have been saying or suggesting for months now. The worst is not behind us. The next round of failures will come over the next 3-4 years, and they will more than double the losses created by the sub-prime lending market.

The one thing the 60 Minutes segment did not mention, just as no one else mentions it, is the role that the Federal Reserve played in creating this financial crisis. Again, both myself and other columnists here have written extensively about this, so see the many other articles here for details about that.

What it did acknowledge is that the next round of mortgage defaults is coming from two classes of mortgage lending that are slightly (but barely) more financially responsible than sub-primes. There were nearly $1 trillion in sub-prime mortages, but these new (to most Americans) forms of mortgages, the Alt-A and Option ARM mortgages, total roughly another $1.5 trillion. Given the fact that the banking industry has already sustained some devastating shocks, there is increasing doubt about the continued viability of many of the largest banks still left standing. Worse, it's going to take another 3-4 years for these loans to default, because that's how long it's going to take for the interest rates on these loans to reset to higher levels. Given the fact that a large segment of these loans are already defaulting even before the interest resets take place, the expert interviewed on the program claimed that he expects roughly 70% of these loans to default based on current, pre-reset default rates!

So all the efforts we've heard about to have the big banks renegotiate existing loans so that homeowners can afford them is likely to be largely wasted motion in most cases.

According to the chart they showed, some of these loans are already defaulting, and there will be peaks in default rates for these loans. The first peak comes at the end of 2009. The second, higher peak, comes in mid-2010. The third, and highest peak comes in mid-2011, when the default rate will exceed the highest peak in sub-prime default rates which occurred in August of this year.

Numerous reports say that more than 10% of all homeowners are already defaulted or are currently “under water,” meaning that they are behind in their mortgage payments and in danger of defaulting. It will not be surpring if that number doubles or even triples over the next 3-4 years.