Over the past few months, there's been a ton of blame-assigment for the economic recession we're in.  It's ranged from government officials to Wall Street bankers to everyday Americans.

Come to think of it, about the only thing the recession hasn't been blamed on is a meterological event.

Now, in this never-ending game of Pass the Blame, a new target has been indentified. Only this time, the target can't defend itself because the target is not a person -- it's an accounting rule.

Cause of the recession, thy name (may be) Mark-to-Market.

If you've never heard of mark-to-market accounting, you're not alone. It's an accounting method so dually complex and arcane that unless you need it in the day-to-day functions of your job, you'd look at its description and be, like, "whatever".

Here's the easier definition of mark-to-market (in 140 characters or less):

Mark-to-market is a bank valuation model that assigns loans-on-the-books a "fire sale" value, even if the bank has no plan to sell.

In other words, mark-to-market accounting requires banks to value assets as if they were about to be sold on the open market.  Unfortunately for banks holding mortgage-backed securities, the "open market" price of an unwanted assets is often lower than its cash flow value. This forces banks to show "losses on paper" even though the losses haven't been realized, and probably never will be, either.

To date, banks have written down hundreds of billions of dollars because of mark-to-market accounting.

To make the point personal, look at your own 401(k) and other investments.  If you were forced to sell everything you owned, you'd get peanuts for your portfolio right now. But, as you're well aware, you don't have to sell everything you own today. You probably plan to hold it for a while. It's why your sense of relief outweighs your sense of dread when you look at the statements.

"By the time I need that money," you remind yourself, "the markets will have at least recovered a bit."

Banks don't have that luxury. Because of mark-to-market accounting rules, they're asked to constantly write-down their own net worth as if they were liquidating right now.  Even if they're not.

Now, it's important to remember that, in spirit, mark-to-market is an consumer protection measure.  Because corporations are required to report the current values of assets, investors can get a better sense of which firms are gaining and which firms are losing. The reality, though, is that mark-to-market accounting can make a bank's balance sheet appear weaker that it really is which then triggers the need capital infusions from the government and leads to heightened investor fear.

This is precisely the reason why banks like Citigroup and Bank of America have been battered by the stock market. Even though they're earning healthy interest on their respective mortgage-backed bond portfolios, banks are having to constantly markdown their portfolio's value.

Regulators treat these banks as being insolvent even though their assets continue to perform.

This is the heart of a congressional conversation starting Thursday, March 12 on the topic of mark-to-market accounting.  Advocates of the rule say market-to-market provides the transparency needed for functioning markets.

Opponents say it's the true cause of the financial crisis and that a reversal in the mark-to-market accounting would stabilize banks and the economy.

And while the true answer is probably somewhere in the middle, the ramifications of Congress even hosting the discussions are palpable to today's mortgage applicants. If mark-to-market rules change, we could expect to banks to be stabilized and recapitalized on paper literally overnight, ushering in a period of higher mortgage rates for everyone.

Mortgage rates would rise with a mark-to-market reversal for two major reasons:

1. Fears of deflation will wane, drawing attention back to monetary-supply inflation
2. Fears of economic depression will wane, drawing money back to the stock market

Both of these points are bad for mortgage rates.

Furthermore, any congressional action that restores faith in the U.S. economy would likely lead mortgage rates north.  This is because -- right now -- mortgage
bond markets are reaping the benefits of safe-haven status.  When life gets uncertain, mortgage bonds rally and mortgage rates fall.

Should Congress offer even the littlest bit of hang-your-hat-on-it support for the economy, investors' thirst for risk will return and mortgage bonds will suffer.

We're still hovering near 5 percent on a 30-year fixed rate mortgage.  Reversing mark-to-market could push rates near 6.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.