Question-and-Answer Session
Clay Simmons
Yes, sir.
Unidentified Audience Member
What are you seeing your lost severity on delinquent mortgages or do you have some sort of assumptions that that you've put in for loss severity?
Clay Simmons
And the question is, what kind of loss severity assumptions do we use on our losses? To-date we've really seen very, very modest losses. We have about $45 billion worth of REO properties. We have reserved approximately $15 million on those REOs. And so, I think you can imply from that what our conservative take would be. As we work those loans through REOs as I mentioned that this quarter we essentially recovered $10 million against realized losses of $3 million.
So, we have been very successful though our workout folks in either recapturing, having the originators repurchase loans or basically work it out through either short sales or whatever and have been fairly successful along those lines. I think as I mentioned, when we look at our credit enhancement levels, 50% recovery on original appraisal is kind of what we are assuming as a worst case, and that's how we are basing our assessment of credit enhancement that sort of thing, although, we haven't seen that kind of behavior in the loans that we've taken through a foreclosure and then ultimate sale. Yes sir.
Unidentified Audience Member
(Question Inaudible)
Clay Simmons
Well, the question was what happens if the tender offer fails? Well, as you know the tender offer was changed from part cash by dollar cash and one share stock to three shares post split stock. The reason we did this was there are tax within Maryland, which is the home state of Thornburg Mortgage from a corporate perspective that requires you to pass certain solvency test.
We, the Board was uncomfortable with our ability to pass the Maryland solvency test with the overwrite lenders retaining most of the cash that would be due to the company and so as a result, we converted in to a half stock. There is really no bar for us to close this tender offer. The consequence is, if we were not to would be, we would be paying 18% interest on the senior subordinated notes as opposed to 12% if we have a successful lender. So, I think those of the consequences we expect the tender offer to be successful at this point.
Unidentified Audience Member
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