FASB to Consider 'Fair Value' for Servicing Rights

The Financial Accounting Standards Board has decided to consider the pros and cons of applying fair-value accounting to mortgage servicing rights.

The board members agreed to start the mortgage servicing rights project at the request of three major accounting firms and several large mortgage lenders.

The Mortgage Bankers Association is "pleased" with the FASB's decision, Alison Utermohlen said.

The trade group's accounting expert noted that industry is divided on the issue of imposing mandatory fair-value accounting. However, there would be a consensus if companies could elect to use fair-value accounting.

One board member commented at FASB's Jan. 15 meeting that it might be possible to give servicers a choice.

An MBA task held its first meeting on Feb.9 to start the process of developing a position on fair-value accounting. MBA wants to present its position to FASB in March.

Many large servicers would like to ditch the complex and burdensome FAS 140 requirements for attaining hedge accounting. Under a fair-value approach, servicers could simply mark-to-market their MSRs and mark-to-market their derivative hedges.

But servicers who don't hedge are divided on the issue. Some prefer the lower-of-cost or market-value approach because it limits volatility. While other servicers complain that LOCOM is too restrictive and "they cannot report the true value of their servicing rights," Ms. Utermohlen said.

In other news, MBA, American Bankers Association and other trade group are urging the Securities and Exchange Commission to drop its plans to issue a staff accounting bulletin (SAB) on loan commitments.

The SEC wants publicly traded companies to treat loan commitments (LCs) as written options starting April 1. But MBA claims the proposed SAB would misrepresent the economic substance of hedging a loan pipeline and force lenders to charge borrowers additional fees.

MBA has appealed to the SEC to defer to FASB, which initiated a loan commitment project in October. "We think FASB is the appropriate body to address this issue," Ms. Utermohlen said.

ABA met with SEC staff last week to explain their concerns about the proposed SAB and MBA meeting with SEC staff on Feb. 2.

Meanwhile, FASB is carefully watching to see what the SEC is going to do. If the SEC issues its staff accounting bulletin, FASB will probably put its LC project on hold.

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