Reuters is reporting this morning that Lehman Brothers Inc. analyst Bruce Harting has officially entered the “bearish” camp on the mortgage sector:

Harting downgraded the mortgage finance sector to “negative” from “neutral,” and the specialty finance sector to “neutral” from “positive. He cut Countrywide and IndyMac Bancorp Inc to “underweight” from “equal weight,” and Washington Mutual to “equal weight” from “overweight” … Harting estimated mortgage industry losses over the next several years at between $40 billion and $242 billion, including from mortgage-backed securities and financial institutions’ balance sheets. He called $174 billion the most likely scenario, assuming an estimated 6 percent decline in home prices. Under this scenario, losses could total $12 billion this year, $40 billion in 2008, $45 billion in 2009, more than $30 billion in 2010, and falling thereafter, he said. “We cannot remember a period in recent history when financial stocks in our sectors went up in the face of rising credit losses, let alone in the early stages of rising credit losses,” Harting wrote. “Only a FRACTION OF THESE LOSSES HAVE BEEN REALIZED, and each quarter the numbers will likely get larger.” Harting added: “We believe that the hefty expected losses in the mortgage sector cannot happen in a vacuum, and that it is just a matter of time before problems spill over to other loan sectors in consumer finance, most notably credit cards, auto and other forms of credit.”

Nothing like being late to the party, I suppose, although I don’t have the full report. The interesting part of the analysis being reported here is Harting’s assertion that on’y a “fraction” of credit losses have been realized thus far — if so, the thinking that says the string of recently-reported third quarter earnings represented a “kitchen sink” scenario would appear to be of the wishful variety.