OTTI Mortgage Loan

[JamesG-PNAtUSNA]

I have a mortgage that was written down due to a large decrease in the value of the property. As a matter of fact, the mortgagee stopped paying.

Therefore, we wrote down the value of the mortgage to its estimated selling price less expenses.

Is the write down shown on the Annual Statement as a Capital Loss or does it go against Net Investment Income?

Thank you in advance for your response.

P.S. I believe this is considered an "OTTI".

[Russ]

Paragraph 16 of SSAP 37, Mortgage Loans, address the guidance for mortgage loan impairments. Paragraph 16 states:

A mortgage loan shall be considered to be impaired when, based on current information and events, it is probable that a reporting entity will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. According to the contractual terms means that both the contractual principal payments and contractual interest payments of the mortgage loan will be collected as scheduled in the mortgage agreement. A reporting entity shall measure impairment based on the fair value (as determined by acceptable appraisal methodologies) of the collateral less estimated costs to obtain and sell. The difference between the net value of the collateral and the recorded investment in the mortgage loan shall be recognized as an impairment by creating a valuation allowance with a corresponding charge to unrealized loss or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to unrealized gain or loss. Subsequent to the initial measurement of impairment, if there is a significant change (increase or decrease) in the net value of the collateral, the reporting entity shall adjust the valuation allowance; however, the net carrying amount of the loan shall at no time exceed the recorded investment in the loan. For reporting entities required to maintain an asset valuation reserve (AVR), the unrealized gain or loss on impairments shall be included in the calculation of the AVR. If the impairment is other than temporary (INT 06-07), a direct write down shall be recognized as a realized loss, and a new cost basis is established. This new cost basis shall not be changed for subsequent recoveries in value. Mortgage loans for which foreclosure is probable shall be considered permanently impaired.