Academic journal article Journal of Accountancy

FASB to Address Accounting for Mortgage Servicing Rights

Academic journal article Journal of Accountancy

FASB to Address Accounting for Mortgage Servicing Rights

Article excerpt

Responding to industry calls to reduce inconsistencies in accounting regulations for mortgage serving rights, the Financial Accounting Standards Board added to its technical agenda a limited-scope project to amend Statement no. 65, Accounting for Certain Mortgage Banking Activities.

The project will focus on

* Whether originated mortgage servicing rights should be recognized as assets separate from the originated loans.

* How recognized mortgage servicing rights should be evaluated for impairment.

Industry asked for action. In 1992 the Mortgage Bankers Association (MBA) requested that FASB address inconsistencies in the accounting treatment of purchased mortgage servicing rights and in the treatment of originated mortgage servicing rights.

Unlike banks and thrifts that originate loans with the intent of holding them over the long term, the mortgage banking industry originates loans and then sells them to a secondary market--retaining the right and obligation to service the loans.

"A lot of practice problems have developed because the current rules provide that mortgage servicing rights are an intangible asset, while rights that are purchased and so-called excess servicing fees can be recognized as assets on lenders' balance sheets," Alison Utermohlen, senior director of the MBA, told the Journal.

Because the accounting rules differ depending on how servicing rights were acquired, she said, many mortgage companies elect to sell the servicing rights on their loans and then buy servicing rights originated by another mortgage company. …

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