Accounting Rule Cheers Servicers

Some servicers are counting the days until they can kiss Financial Accounting Standard 133 goodbye and elect fair value accounting for mortgage servicing rights.

The Financial Accounting Standards Board is very close to issuing a new accounting standard that allows servicers to mark-to-market MSRs and avoid all the FAS 133 headaches of documenting hedging strategies and hedge effectiveness.

The Mortgage Bankers Association has asked the board to issue the final statement as soon as possible so that calendar year filers can adopt it retroactively to Jan. 1, 2006. "A lot of large servicers are planning to do that," MBA senior director Alison Utermohlen said.

The new standard for "Accounting for Servicing of Financial Assets" is expected to be numbered Statement No. 156.

FASB is working to issue FAS 156 in early March. The board has signaled that early adoption is permitted if a company has not filed a financial statement in 2006 prior to the issuance of the new standard. So it will be tight for a servicer with a fiscal year that ends Nov. 30 to go for early adoption.

FAS 156 does not interfere with servicers who want to continue to use the lower of cost or market approach.

But servicers who elect to use fair value accounting will be able to mark-to-market MSRs and their hedge instruments without going through all the FAS 133 hoops.

This mark-to-market approach should reduce earnings volatility since unrealized gains and losses on MSRs would be offset by unrealized gains or losses on hedge instruments, regardless of hedge effectiveness.

"MBA believes this change represents a hallmark event in the evolution of the accounting treatment of servicing rights which will significantly reduce many of the members' costs of doing business while improving the accuracy of their financial reporting," Ms. Utermohlen says in a letter to FASB.

"We are pleased with the way FASB has handled the issue and we are very much looking forward to the release of the final statement," the MBA accounting expert told Mortgage Servicing News.

Separately, FASB has issued an exposure draft that would allow mortgage bankers to mark-to-market loans held for sale for 60-90 days. The comment period ends April 10.

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