Jan Hatzius (right), chief economist at Goldman Sachs, made waves today with a note released last night that put possible credit losses from mortgage defaults at $2 trillion, due to leverage. Hatzius’s analysis have drawn attention before: Back in March 2006, Hatzius said U.S. housing was overvalued by about 20%, based on historical relationships between monthly mortgage payments and median household incomes.

Jan Hatzius (Photo: NABE)

Here are highlights from Thursday’s note:

“Estimates of the likely credit losses on outstanding mortgages have grown sharply in recent months. A back-of-the-envelope calculation using past default experience in different home price environments now suggests losses of around $400 billion. … [O]ne sometimes hears that it is just equivalent to one bad day in the stock market. But this analogy is wrong.”

“[I]f leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion. … This is a large shock. It corresponds to 7% of the total debt owed by US nonfinancial sectors (households, nonfinancial companies, and government).”

“Our conclusion is that the likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized.” – Tim Hanrahan