Lenders, FASB enter MSR field test phase.

A handful of thrifts, commercial banks and mortgage banks have begun scouring their fourth quarter 1994 financial records to determine what clarity and implementation problems could arise if the FASBs latest exposure draft is implemented.

Those lenders, and potentially more, have volunteered to field test the Financial Accounting Standards Boards proposed standards on accounting for mortgage servicing rights and report the results by mid-September.

The board has solicited participants to perform a retrospective field test on the fourth quarter of 1993, and, once the reports have been submitted, will begin summarizing and analyzing the collective data before resuming deliberations on the draft in the fourth quarter of 1994.

Participants have been asked to provide a copy of their financial statements for that quarter; summarize the effect on the financial statements; identify any implementation problems and describe how they were resolved; assess the costs both startup and ongoing to implement the proposed statement; and comment on any other aspect of the test or draft.

The FASB exposure draft, Accounting for Certain Mortgage Servicing Rights and Excess Receivables and Securitization of Mortgage Loans, an amendment to FAS 65, Accounting for Certain Mortgage Banking Activities, applies to mortgage servicing associated with loans that were originated for sale or purchased with the intent to sell. It also eliminates the accounting distinction between originated mortgage servicing rights and purchased mortgage servicing rights, and allows originated mortgage servicing rights to be treated as a separate asset.

Field tests aren't mandated for FASB, but on major projects such as FAS 65, the board seeks out companies to test its proposals. Those tests serve a number of purposes, including giving the industry an opportunity to analyze the rule from a practical standpoint. The primary goal, however, is to allow the board to gather information about the clarity of its proposals and potential problems with implementing them.

Larger companies have traditionally participated in field tests more often than smaller companies, mostly because those companies have better resources and are more equipped to handle the additional burdens that are part of the tests.

Were the leading originator of mortgages in Connecticut, so this is clearly going to impact business we want to be part of the upfront process, said Carlos Mello, first vice president, Peoples Bank, of Bridgeport, Conn.

Mello, a member of the Savings & Community Bankers of America accounting committee, said FASB solicited volunteers from the organization and, although Peoples hasn't yet participated in any FASB field tests, this was a good opportunity and seemed like a good fit for us.

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