The Securities and Exchange Commission is looking into an accounting practice that has led to large writedowns at several specialty finance companies, say top executives at companies in the sector.
The Big Six accounting firms recently received questionnaires from the securities regulator about the practice of gain-on-sale accounting, which allows companies to book profits before they are received, the executives said.
Last year a handful of companies, including Mego Mortgage Corp., Atlanta, and Green Tree Financial Corp., St. Paul, took sizable writedowns and restated earnings when their assumptions on loan sales did not pan out.
FirstPlus Financial Group, Dallas, was the first such lender to eliminate gain-on-sale accounting. But the high-loan-to-value specialist did not adjust its accounting methods retroactively.