NEW YORK -- The Financial Accounting Standards Board appears ready to allow some flexibility in accounting for collateralized mortgage obligations, observers say.

The board had tentatively ruled that all issues of the obligations, or CMOs, should be booked as debt financing -- not as a sale of assets. The board hoped to release that ruling as a technical bulletin in April.

But Alan Reese, an accounting board staff member, said the staff will "officially propose that the board bury the technical bulletin" at a meeting next week.

The staff instead will again recommend that the board authorize a full-scale study that could take a year or more -- but which could allow some conditions for a sale of assets.

"That, in effect, would be a 180-degree switch from the board's original plans," said Donald Ellwood, an accountant with Arthur Young & Co.

And that's relief to mortgage bankers, in particular, who in effect cannot use the profitable mortgage security if they can't get the mortgages off their books.

In recent months, mortgage bankers and investment bankers have lobbied members of the accounting board, urging some flexibility in interpretation.

Their pleas, plus a thick packet of information circulated by the board staff, have convinced several members that "the array and complexity of issues just wouldn't be addressed by a technical bulletin," Mr. Reese said.

If the full board agrees next week, the staff would begin writing a proposed statement on such multiclass structures. …