The problem is that the bank is carrying the loan on its books and pretending it has full value. Negotiating that improves their actual financial position, but requires recognizing the loss that they are trying to ignore. If the stop ignoring it then they are possibly going to fail.
That is why the banking sector badly needs such a giant bailout right now.
The main problem is if they switch any loan from "to maturity" to "to market", every loan has to switch or none.
If you want to estimate current dollars, and forecast dollars at the end of the month, quarter, year, etc; that's fine too, and would probably give a better picture of the books than wrong math where current and future dollars are compared directly as if they were the same.
Mortgage banks drove the UK bankrupt cap in hand to the IMF in 73 with far far less of a rates delta than is happening now.
Edit : there was a similar breakdown of society as is happening already today almost everywhere , back in 73 in the UK. The main difference is that the banks managed to put much more of the pain onto the common man since then.
But even if that happens, the delta between book value and market value for the banks is mostly covered by shareholder equity, so banks may fail but the system should be fine.