WASHINGTON -- Bankers have expressed concerns about proposed accounting rule changes for home mortgage servicing rights to accounting rulemakers and federal bank regulators,.
During the Financial Accounting Standard Board's quarterly meeting with the bank agencies last week, some financial industry trade groups invited by the regulators urged the board to eliminate a provision that essentially would require lenders to split underwritings of mortgage-backed securities into two transactions for accounting purposes.
Securitization would have to be accounted for as the sale of a loan and the subsequent acquisition of a mortgage-backed security.
"A lot of companies securitize for the benefit of changing the attributes of the mortgage loan," said Carlos Mello, first vice president of People's Bank, Bridgeport, Conn. "FASB wants to call it an accounting event, but that seems to be inconsistent."
Bankers also complained about some of the methodology outlined in a provision that would require mortgage servicing rights to be assessed for declines in present value. Under the proposed rule, losses in mortgage servicing rights portfolios would not be able to be offset by certain gains.
"The question is how you go about figuring out what fair value is," said Donna Fisher, manager of tax and accounting for the American Bankers Association.
"You can come up with very different answers depending on how you figure it out," she said. "The proposed method could end up making you write down a servicing rights portfolio more than you should. We think it should be done more like your debt security portfolio, where gains offset losses."
However, despite the few troublesome details, bankers are generally satisfied with the proposed changes.
If instituted, the changes will allow banks to recognize fees associated with mortgage servicing -- collecting mortgage payments and passing the proceeds on to investors -- on their balance sheets. This would increase assets and capital for institutions that have originated mortgage servicing rights.
"It sounds like there are a few extraneous concerns, but the core of the draft is quite desirable to banks," said Alfred Pollard, senior director of the Bankers Roundtable.
FASB, the independent board that sets accounting rules for all companies that follow Generally Accepted Accounting Principles, issued the proposed rules for comment in June.