How is this calculated? Expected loan loss less any credit enchancements?

Well, I’m not really up to date on this, but my understanding is that holder of MBS could calculate OTTI by using any sensible model of the cash flows from the collateral using any data that they felt was appropriate and essentially ignore current market prices. As everyone knows market prices are just silly, and real valuation uses statistical data and stochastic interest rate models to get “real” valuations. I think my guffawing on that is about a year old.

indeed, the recipe is to carefully design a cash flow model using stochastic interest rates, prepayment and default assumptions, then pull a discount rate out of your a$$ and calculate the fair value