Calculating Fair Value of Loans

Since commercial mortgage loans are typically non-marketable securities, portfolio managers are forced to calculate a fair value for their loans.  As stated in FASB 157, fair value framework via the income approach (i.e. Level III calculations) is typically deployed on commercial mortgage loans.

In order to calculate a fair market value (FMV), tools such as LMS allow portfolio managers the opportunity to fair value their loan by using LMS's market valuation capabilities. Without a calculation engine like the one provided by LMS (using treasuries indices, property market conditions, etc.) and the ability to export data into external systems, portfolio managers would be forced to rely on spreadsheets to calculate FMV.

Spreadsheets can present additional issues, which don't allow consistent application of FMV rules that a database solution such as LMS provides. LMS allows the users to create rules and apply them consistently across the entire portfolio as opposed to a loan-by-loan spreadsheet approach. With the financial challenges created by FASB 157 fair valuation requirements, a tool like LMS can mitigate the financial risk for commercial loan portfolio managers.

As a result, LMS's market valuation tool is invaluable to the portfolio manager of commercial loans, since it provides the income approach calculation that would otherwise be much more difficult and time-consuming to derive.

For additional information please download our brochure, or contact John Stone at 860-298-4659 or