MBA Urges Delay of SEC Loan Policy

The Securities and Exchange Commission is planning to issue a staff accounting bulletin that would treat loan commitments as liabilities, according to the Mortgage Bankers Association, but the MBA is urging the SEC to wait until the Financial Accounting Standards Board completes a project on loan commitments.The SEC's treatment of loan commitments as "liabilities only" would misrepresent the economic substance of hedging a loan production pipeline and reflect a "lack of understanding of the mortgage banking business," the MBA says in a letter to SEC chief accountant Donald Nicolaisen. FASB has agreed to re-examine the treatment of loan commitments because some mortgage companies are booking them as liabilities and others as assets. In addition, there is a divergence in the way lenders value loan commitments. However, the MBA is concerned that conflicting SEC and FASB accounting standards could confuse investors and increase companies' earnings volatility, as well as their funding costs. "We respectfully request that the Commission reconsider any decision to require loan commitments to be accounted for as liabilities only and to refrain from releasing any [staff accounting bulletin] until FASB releases guidance upon the completion of its loan commitment project," MBA chairman Robert Couch says.