Mortgage rights fight moving to regulators.

Pressure is mounting on bank regulators to maintain a key difference between GAAP and RAPmortgage servicing rights status as an intangible assetnow that the Financial Accounting Standards Board is near issuing a standard that skirts the subject.

Regulators also will have to write, for the first time, standards that indicate how much regulatory capital that financial institutions must hold against originated mortgage servicing rights.

The Mortgage Bankers Association plans to talk with regulators about those issues during meetings in the next few weeks, said Alison Utermohlen, a senior director at MBA and the associations accounting expert.

The concerns stem from FASBs exposure draft, Accounting for Mortgage Servicing Rights and Excess Servicing Receivables and for Securitization of Mortgage Loans. The draft is designed largely to enable bankers who originate their mortgages to capitalize their investment in servicing, just as institutions that purchase servicing rights now get to do.

Mortgage servicing rights have been regarded by regulators over the years as an intangible asset, much like goodwill. Utermohlen said Robert Storch, the chief accountant of the Federal Deposit Insurance Corp., wrote FASB asking that the board retain references to mortgage servicing rights as intangibles. FASB declined, perhaps to send a message that the tangible/intangible clarification is old-fashioned and inappropriate, Utermohlen said.

Now that FASB has refused to speak up, the regulators must decide whether their regulatory accounting principles should state that MSRs are intangibles. Thats not quite as easy as it might seem, for Congress has told regulators they must work to narrow the differences between RAP and GAAP.

A different kind of problem faces the regulators regarding capital. Now that originated mortgage servicing rights will go down in GAAP statements along with purchased MSRs as an asset, banks will have to hold capital against it. But how much? Utermohlen noted that current regulations state that no more than 50% of the value of PMSRs can be included in core capital ratios.

In addition, under GAAP any MSRs produced from the securitization of loans will increase net worth. Regulators must decide whether net worth will rise under RAP as well, Utermohlen said.

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