I know that this sounds odd coming from me, a long term Bear, but the Mortgage crisis hitting the Market today is not as bad as everyone seems to think.  Yeah, consumer spending is going to wane, and yes, business activity will dry up somewhat for a short while until this works its way out of the system, but the Mortgage crisis is not going to hurt the economy for years on end, and it is not the reason I am a long term Bear.  There's another reason for that.

Look at it this way: If banks indeed get foreclosures at the worst possible frequency, what is the worst thing that could happen?  We're talking about asset backed securities.  Yeah, there will be losses, but not 100%, or anything near that.  Consider a $10 Billion portfolio.  Assume the entire portfolio gets foreclosed and returned to the bank (unlikely that the entire portfolio comes back).  Assume that the lending institution reverses these properties back into the economy at steep discounts; call it 20%.  That's a $2 Billion hit, and it hurts, but it won't cripple the lender.  In fact, a nimble lender may even find a way to front run the loan for the foreclosed property too, thus solidifying revenue streams, albeit at a lower rate. 

Think about Wells Fargo, Bank of America, and Citigroup.

From a report recently published by the street, Wells Fargo (WFC) currently holds $33 Billion in Mortgages for sale;  Bank of America (BAC) currently holds about $6 Billion;  And Citigroup currently holds about $7.5 Billion worth of mortgages for sale.  The balance of their mortgage portfolios have already been sold to distribute risk and to free up capital.