Originated Mortgage Servicing Rights Can Count as Capital, Starting

WASHINGTON - Starting today, banks and thrifts may count originated mortgage servicing rights as capital.

Federal regulators announced the change last Friday to bring bank capital standards in line with Financial Accounting Standard 122, which eliminated the distinction between originated and purchased mortgage servicing rights.

Until now, only mortgage servicing rights bought from others could be used to meet capital minimums. "Originated mortgage servicing rights" means a bank or thrift sold a loan it originated but retained the obligation to service it. Servicing rights have value because the institution earns fees for collecting mortgage payments and sending principal and interest to mortgage holders.

Both types of mortgage servicing rights may only account for 50% of Tier 1 capital. Both must be valued at 90% of fair market or 100% of book value.

Financial institutions must adopt FAS 122 for fiscal years beginning after Dec. 15. Banks and thrifts, however, were permitted to adopt the accounting standard as early as June 30.

What takes effect today is actually an interim regulation that the public may comment on until Oct. 2. But the rules are not expected to differ much when they are made final later this year.

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