Alt-A Tramples M&T

"Mortgage market related pressures are the headline grabbers, but the EPS impact of about 10 cents accounts for just 26% to 36% of the difference between management's [first-quarter '07] guidance range and [fourth-quarter '06] results," Thompson writes in a note. A "greater than anticipated net interest margin pressure is a bigger long term concern in our opinion (as the write down and accrual should be one time barring further market deterioration)."

That being said, "lower demand for Alt-A product on the heels of troubles affecting subprime should impact valuations and potential gain on sale income at the larger mortgage players with Alt-A exposure," she writes.

Alt-A loans include option adjustable-rate mortgages, negative amortization loans and other nontraditional loans. Bears on the mortgage stocks say these loans are troubling because they often include provisions that sharply increase borrowers' payments after a set period -- increasing the risk of default.

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