Here is the problem. What is the real value? A mortgage that is current is a contract and the value of the contract is what the home owner agreed to pay, not the underlying value of the asset.
However, if it is show that the contract is not being followed (late payments, etc) then the contract is devalued down to a new level. What is that new level? Mark to market establishes the current value of that contract as the current retail value of that asset.
But the value of a house that just sold in the neighborhood is not likely to be the value of that asset. There is now cost associated with administration of the sale of that asset. The proper way should be to value the asset lower than current market by some amount that represents the cost of selling that asset.
I am of the opinion that valuation should be mark to contract until the home owner falls behind. Then mark to less than market (say 10% less) once there is a late payment of say 60 days or more.
Good analysis.
Between M2M and bundled bad mortgages you have one of the most stupid situations in the world of finance.
You could have millions of dollars of solid property bundled together with a few bad ones. Due to the bad ones no one will buy the bundle. And so its ‘market’ value goes to zero. Though its backed by millions of dollars of hard, real assets that better than cash.
I hope Mr. Sarbanes and Mr. Oxley are proud of their Frankenstein monster.