Financial Accounting Standards Board Begins Hearings on Accounting Rules for Loan-Origination and Acquisition Fees

By Basch, Mark | American Banker, July 16, 1986 | Go to article overview

Financial Accounting Standards Board Begins Hearings on Accounting Rules for Loan-Origination and Acquisition Fees


Basch, Mark, American Banker


Financial Accounting Standards Board Begins Hearings on Accounting Rules for Loan-Origination and Acquisition Fees

The Financial Accounting Standards Board begins three days of hearings today in Washington on its controversial proposal on accounting for loan-origination and acquisition fees, with the hearings likely to focus on the issue of what costs of loan originations can be capitalized.

According to the board proposal made last December, all fees associated with originating loans should be amortized over the life of the loan, while most costs would be expensed in the period in which they are incurred. Only incremental direct costs, which are narrowly defined in the proposal, could be capitalized and deferred over the life of the loan.

At an open meeting in Stamford Monday, board staff member Peter Horoszko told board members that the hearings should focus on two issues regarding direct costs of originating loans: "What costs, if any, ought to be capitalized?' and, "How would [those costs] be reliably measured?'

The staff's recommendation to the board was based on an analysis of 575 of the 817 comment letters the board received on the loan-origination fee issue, Mr. Horoszko said. The proposal would affect all lenders, but most of the criticism of the proposal has come from the thrift industry, which relies heavily on loan-fee income in its mortgage lending.

"Quite a number of respondents indicated this [proposal] would be the demise of the thrift industry,' Mr. Horoszko said.

"Other industry response was mixed,' he said. "The thrift industry was fairly united in their views.'

There is practically no chance that the board will change its position completely and continue to allow loan fees to be recognized immediately as income, but the thrift industry does stand a good chance of changing some parts of the proposal. The most likely area for change is the issue of direct costs. "That's the area we have to concentrate on,' said Bertill A. Gustafson, senior vice president and controller of Great Western Savings, Beverly Hills, Calif.

Under the board's proposal, costs that can be clearly defined in the lending process, like the use of an outside appraiser, can be capitalized and deferred over the life of the loan. But the costs of using in-house appraisal departments could not be capitalized. The expenses would have to be incurred immediately, while the loan-fee income that consumers are charged to offset these expenses would be deferred. "If all fees are deferred, all direct costs must be deferred,' said George L. Engelke Jr., executive vice president and treasurer of Astoria Federal Savings & Loan Association, Astoria, N.Y.

Commercial banks also dispute the board's proposal on direct costs. "Banks agree that costs should be capitalized if fees are amortized,' Mr. Horoszko said.

"It doesn't make economic sense,' said David Morris, vice president of Chase Manhattan Bank. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Financial Accounting Standards Board Begins Hearings on Accounting Rules for Loan-Origination and Acquisition Fees
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.