The Financial Accounting Standards Board has proposed eliminating the accounting distinction between purchased and originated mortgage servicing rights. This change will affect institutions that originate mortgage loans, since they will now be able to report - on their balance sheets - a servicing asset for originated loans.
The amendment has several implications. First, if it is implemented as proposed in the FASB exposure draft, commercial and mortgage banks will be on a more even competitive footing because of the creation of the servicing asset for originated loans. Currently, many commercial banks cannot effectively compete with mortgage banks because mortgage bankers routinely sell their servicing rights in order to recognize the servicing asset, thereby enhancing the proceeds of a loan origination and sale.