The Portfolio Investors Committee of the Mortgage Bankers Association (MBA) met at 10:00 a.m. on Sunday, February 1, 2004, at MBA's Commercial Real Estate Finance/Multifamily Housing Convention in Orlando, Florida. The meeting was led by Committee Chair Thomas Jensen, and Vice Chairs Michael Kelly, New York Life Insurance Company; Rembert Owen, AIG Global Investment Corporation; and Deborah Towner, GE Asset Management Real Estate Finance.

Mr. Jensen opened the meeting and thanked the Vice Chairs, all Committee members and all other attendees for their interest in the work of the Committee.

Leanne Tobias of MBA briefed the Committee on key advocacy initiatives at MBA. These include:

Committee leadership briefed members on the Committee's ongoing initiatives to be continued in 2004.

1) Regional forums: 2004 forums for portfolio investors who hold loans on balance sheet will be held in New York City (host firm: New York Life) in April 2004; in Chicago, IL (host firm: Allstate Investments) in June 2004, and in Seattle, WA (host firm: GE Asset Management Real Estate Finance) in late October or in early November 2004. The 2004 regional forum initiative is being headed by Committee Vice Chair Deborah Towner. MBA will be soliciting member views on potential speakers and topics of interest. Members of the Portfolio Investor Committee are invited to contact Leanne Tobias of MBA (ltobias@mortgagebankers.org) with suggestions for speakers and discussion topics for the 2004 forums.

2) Participation Agreement. A standard form loan participation agreement for pari passu mortgage loan investments is being developed by a working group led by Committee Vice Chair Michael Kelly. The Participation Agreement Working Group includes portfolio lenders and attorneys. A working draft of the agreement is being revised for presentation to the industry, and will be posted on MBA's website for comment. Portfolio lenders and attorneys interested in participating in the comment and revision process are invited to contact Michael Kelly at michael_kelly@nylim.com or Leanne Tobias at ltobias@mortgagebankers.org.

Benchmarking: During its October 2003 meeting, the Portfolio Investors Committee noted its receptivity to monitoring efforts on how to develop industry-wide benchmarking data for mortgage loans, with potential avenues including Life Comps, Debt-X's portfolio valuation model, and the use of various software packages (S&P, Moody's, PPR and others). Members also noted during the October 2003 meeting that the monitoring effort also should recognize the challenges inherent in the development of meaningful industry benchmarking data, including problems of dollar and labor cost, definitional and data collection challenges, and possible confidentiality issues. Committee members also noted that a mortgage loan benchmarking system might best encompass all portfolio investors (pension funds, banking institutions and finance companies), not just life insurance companies.

As a follow-up to the October 2003 discussion, Mr. Jensen introduced a special discussion of benchmarking initiatives at the February 2004 Committee meeting. Mr. Jensen updated the Committee on the Life Comps initiative. Life Comps, under development for several years, was moving into a pilot stage of implementation and would be monitored by the Portfolio Investors Committee. The Life Comps index has been under development since 1996; publication of the index is commencing. Mr. Jensen then introduced Karen Johnson, Managing Director of Debt Exchange, who briefed the Committee on Debt Exchange's DXMark valuation modeling tool. DXMark is derived from a model using transactions executed between 2,000 buyers and sellers participating at DebtX. The model provides loan portfolio data for all of the major commercial real estate categories - industrial, office, retail and multi-family properties.

DXMark is designed to assist credit policy executives, risk managers, workout teams, and other senior executives to conduct risk analysis, validate origination pricing, and identify loan sale opportunities. The model complements internal valuations by providing an objective estimate of a portfolio's market value. By comparing the DXMark valuation to an internal valuation, for example, an institution can decide which assets to sell and realize gains in the process. In addition, DebtX can run an institution's loan data through its valuation model to estimate the required market yield on each loan. The DebtX model is calibrated to build a discount rate (required yield) from more than 50 data points collected on each loan. The required yield is utilized in a discounted cash flow model to calculate each loan's net present value. Discount rate assumptions are based on actual loan and bid data from DebtX's loan sale transactions. These assumptions are updated in a timely manner to reflect current market conditions and requirements.

Ms. Johnson observed that the integration of market-based data with internal valuation information could help individual institutions and the mortgage industry develop appropriate benchmarking initiatives, and observed that the market was beginning to provide lenders with an array of valuation alternatives.

Mr. Jensen then introduced Sally Gordon, Vice President and Senior Credit Officer for Moody's Investors Service. Ms. Gordon discussed Moody's Commercial Mortgage Metrics valuation software, developed by Moody's in partnership with the real estate consulting firm of Torto Wheaton. The model combines loss frequency data, loss severity data, loan terms and property-type and market-specific information to derive portfolio and loan values and expected losses. The model replicates the analytic techniques used in valuing structured financings and corporate bonds, so that real estate loans can be valued in comparison with other debt instruments. The Moody's/Torto Wheaton product can be used to size debt allocations, price loans and loan portfolios, analyze credit risks and anticipate defaults. The software is being rolled out nationally in early 2004, and is in use on a prototype basis at TIAA-CREF and at a number of major banks and life insurance companies. Ms. Gordon noted that the addition of extensive real estate market and debt financing information to an institution's internal valuation data could lead to enhanced forecasting and management capabilities at the portfolio level.

Mr. Jensen observed that a variety of new portfolio valuation and benchmarking techniques are becoming available to portfolio investors, and that the options represented by the Life Comps initiative and the Moody's and Debt Exchange products are a few of a considerable range of options. Mr. Jensen concluded the benchmarking review by noting that the Portfolio Investors Committee will periodically monitor and provide information to members on industry best practices, including portfolio management, valuation and benchmarking, during 2004. Committee members with particular topical interests may contact Leanne Tobias of MBA at ltobias@mortgagebankers.org.

Mr. Jensen thanked the Vice Chairs and all participants in the meeting for their insights and for their participation. The meeting was adjourned at 11:00 a.m.