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To: Paul Kern who wrote (73313)	2/27/2009 4:23:43 PM
From: Keith Feral	Read Replies (1) \| Respond to of 118717

I have been wondering what the net impact of modifications would have on a bank balance sheet. I'm not sure if this guy is right or wrong about the assumptions, but it seems very probable that modifications would enable banks to write up the value of their loans.

To: Paul Kern who wrote (73313)	2/27/2009 4:42:39 PM
From: rich evans	Respond to of 118717

This story doesn't follow the rules. If the bank holds the mortgage, it does not mark to market. It marks to valuation. It takes a valuation reserve so it marks down to 400,000. The purpose in changing the mark to market rules is that the bid and ask for CDO's are too far apart to make a market. The bid is 20 and the ask is 60. The key is to hold all these securities to term and see where they end up after they have termed out which is usually 5-7 years. If the present default rate of about 10% for 30-60-90-180- days is about done and the 100% rollover rate continues, then these loans would be at 60% of value. The recovery rate is 50% so the loss is 20%. Using a 12% return and a 6 year payout means the CDOs would be worth about 40% to an outside investor. But that assumes the default rate does not continue and goes back to normal- hence the bid-ask discrepancy. Best thing to do is let discounted cashflow set the accounting value of these securities and wait and see. As to mortgages held directly , one can use valuation reserve accounting as set forth earlier. So this article does not measure up. Rich