The practical impact of a new accounting rule dominated panel discussions at the Mortgage Bankers Association's national mortgage servicing conference last week.

FAS 122, the new rule from the Financial Accounting Standards Board, requires servicers to include originated mortgage servicing rights on their balance sheets as a way to improve risk monitoring and management.

Most companies began accounting for originated servicing rights last year, and the rule will apply to all servicers by the end of 1996.

The change has already taken a toll on the sales of servicing rights. Previously, lenders could list only purchased servicing on their balance sheets, so the common practice was to sell originated servicing rights and replace them with purchased servicing.

Now that they can list originated rights as assets, the sales activity has dropped off dramatically.

Income from servicing sales averaged 4.3% of servicers' total income in 1995, down from 8.2% the previous year, according to preliminary results of the Mortgage Bankers Association's 1995 cost-of-servicing survey. Final results from the survey of 315 servicers will be available at the end of June.

The new rule also tends to increase the size of lenders' portfolios, and as portfolios get larger, the expenses attributed to running a servicing operation become more important.

According to the preliminary results, the cost of servicing was $110 per loan in 1995, up from a low of $95 in 1994. In 1993, the average cost was $112 per loan, and in 1992, $123.

Douglas G. Duncan, an economist and director of research and policy at the MBA, said that the survey does not take outsourcing into account. This might affect the numbers significantly, since subservicing has surged in popularity.

Mr. Duncan said he expects the number of loans serviced per employee to rise in the future, as it has in the last year. In 1995, the average number of loans serviced was 766 per employee.

The survey shows that as a servicer's portfolio gets larger, economies of scale are realized - each employee is able to service more loans. If a portfolio grows larger than $20 billion, according to the survey, each employee services an average of 742 loans. But for portfolios between $4 billion and $20 billion, each employee services an average of 870 loans.

Geoffrey A. Oliver, a partner at KPMG Peat Marwick, Washington, has seen other evidence of firms becoming less efficient as they grow.

"It seems that some big players are not taking advantage of their size," Mr. Oliver said.

Many of the large players grew quickly through acquisitions, and that led to a potential problem - companies wound up with several servicing sites.

"Multiple sites are here to stay, but the question is how many," Mr. Oliver said. When deciding on the number of servicing sites, a company should determine whether the customer service capabilities should be under one roof and where investor interfaces should be.

With the implementation of FAS 122, large servicers need to be savvier than ever about managing the inherent risk of a servicing portfolio, others at the conference said.

Timothy F. Ryan, a senior manager at Price Waterhouse, Boston, said the rule has positive and negative implications.

With all servicing assets on servicers' balance sheets, the risk must be monitored and hedged to protect the assets. So the portfolio must be stratified, or separated by specific characteristics, Mr. Ryan said.

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