Wall Street will be facing "a headwind of continued losses for the better part of five years", that according to Whitney Tilson, the founder of hedge fund T2 Partners during a recent interview on CNBC.

Tilson estimates that over $1 trillion in residential and commercial real estate losses are still yet to come.

The perfect storm for this type of dire prediction is not complicated. When you combine hundreds of billions of adjustable rate mortgages with 600,000 job losses per month the result is going to be a prolonged housing depression which is going to further complicate the banking sector and broader economic stability.

The reason that we are currently in the eye of the storm is not only because as the graph on the left shows that mortgage resets will temporariliy moderate in 2009, but it is also because of the broad based foreclosure moratoriums that were in place for the past several months and have recently expired. 

The two biggest components of future mortgage defaults are option ARMs and Alt-A loans, neither of which are easily refinanced.

Option ARMs defer principal and interrest payments on to the back of the loan further accelerating the negative equity phenomenon.  Not only are these loans less likely to be able to be refinanced because of the negative equity but even if they could be, there is no guarantee that the owner could actually afford the new payment.

Additionally, in terms of Alt-A loans, if the borrower had limited documentation or a "stated" income when the loan was originated, refinancing these loans will also be problematic considering the current underwriting environment.

And then you throw in massive job losses which are causing even FHA loan defaults to rise and you have a housing hurricane that is far from running its course.