March 11, 2011
I think that the refusing to include the amount of the mortgage in excess of the fair market value of the property makes sense both on a plain reading of 413(a) of Dodd-Frank and from a policy perspective:
1) Plain reading. The provision says "value of the residence of such person" not "value to such person," which seems to at least suggest a more objective, market-based valuation standard, as opposed to the value of the property for the owner's liability purposes.
2) Policy. Moreover, given that residential mortgages are generally nonrecourse debt, subtracting any amount of the mortgage in excess of the fair market value of the residence when calculating such value for "accredited investor" purposes would incentivize those on the margin to take on more debt than they might otherwise for the purposes of gaining/maintaining "accredited investor" status, since they would not have to incur any personal liability aside from losing the equity in the residence when it is taken subject to a default on the mortgage. And of course, given that in the situation we are discussing the homeowner is underwater, there would be no home equity to speak of anyway.