Market Value Accounting Required ForMortgage Resale Agreements

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ARLINGTON, Va. - (05/04/05) -- NCUA said Tuesday that commitmentsto sell mortgages on the secondary market amount to derivativesunder generally accepted accounting principles, so must beaccounted for at fair market value on a credit union's financialstatements. In a new accounting bulletin, issued with the bankingregulators, NCUA also noted that interest rate lock commitmentswith members on loans originated for resale should also beconsidered as derivatives and reported at market value under GAAP.The definition of a derivative loan commitment is when a lenderagrees to make a loan under certain specified conditions, such aslocking in a rate, prior to funding, regardless of whether marketrates change. Market value accounting is also required for forwardloan sales commitments, mandatory delivery contracts and bestefforts contracts to resell mortgages on the secondary market, theregulators explained.

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