Valuing Mortgages Based on Collectibility (Servicing‪)‬

This column responds directly to the current discussions regarding what distressed-asset investors should be paying for distressed mortgages assets. It also addresses what is the relevant methodology for valuations and what are best practices for modifying loans to optimize cash flow--such that taxpayers, investors, servicers and homeowners benefit. Today s crisis has been heightened by the adoption of an accounting rule--Financial Accounting Standards Board (FASB) 157--that dictates that distressed mortgage portfolios should be valued based on a mark-to-market framework. What this requirement fails to consider is the purchaser of such a portfolio is buying a cash-flow stream with real residual value.