¹ Securitization is the process that occurs when a firm purchases many mortgages from the originating banks and offers securities to investors that pay returns based on the mortgage payments received.For example, a firm buys $1 million of mortgage receivable that have an average term of 20 years and an average interest rate of 5% for $900,000.Then the firm sells 1000 $1,000-securities that will pay to the investors their proportionate share of the interest revenue received each month on the mortgages.The highest expected payments are $4,167 (.05/12 * $10,000,000 * 1), so someone with a single $10,000 security could receive $4.167 each month for 240 months.Of course, the actual cash received will differ depending on the number of on-time payments and on any mortgage prepayments, etc.

Facts

Mortgage Principal at origination 1/1/2019:$10,000,000

Annual Interest Rate at origination:6%

Term of Mortgage from origination 1/1/2019:20 years

Purchase Price: $10,000,000 on 1/1/2019

The mall owner has stopped paying principal beginning April, 2020, and anticipates being unable to pay even the interest portion beginning September, 2020 unless the CDC allows less strict mask and social distancing requirements.

The mall had a fair market value of $20 million on 1/1/2019, and expects a current appraisal to be at about $16 million.

Ignore refinancing costs.

The securitizations do not qualify for sale accounting, and the creditor retains legal title to the mortgage as well as a 10% participation in the mortgage.

Today is August 31, 2020.

A.give a separate restructured loan that is a reasonable alternative to the current unaffordable mortgage.You may change the interest rate, the amount of principal, the monthly payment, and/or the term of the loan.The payments do not need to be the same each period.However, you want to limit the extent to which the principal owed grows and the likelihood that this restructuring being a model for the other mortgages in your company's portfolio.

B.Evaluate the restructured loan to see if the modifications will result in any gains/losses or changes in GAAP interest rate, referencing pages 14-28 to 14-32 in your text on modifications.

C.an amortization table for the restructured loan with the modifications and expected mortgage payments.If the creditor and borrower would have different accounting treatments for the loan (see B above), create an amortization table for the creditor and the borrower.