FASB Rejects MBA Modification Request

The Financial Accounting Standards Board has rejected a request by the Mortgage Bankers Association for relief from having to treat all loan modifications as troubled debt restructurings. As the secondary market seized up in last year, many mortgage bankers got caught with mortgages on their books that they couldn't sell. MBA claimed these lenders do not have the computer systems to project discounted cash flows on principal and interest, as required by FAS 114, to calculate loan impairment or losses. MBA suggested an alternative standard, FAS 5, which measures impairment based on the amount a principal the lender does not expect to recover. At a Jan. 30 meeting, FASB members noted that FAS 114 was designed to prevent lenders from avoiding losses on restructurings and they unanimously rejected MBA's request. "We are disappointed by the decision. But our members have accepted the decision and they are now working to enhance their computer systems to apply FAS 114 as necessary," MBA's accounting expert Alison Utermohlen said.