The Office of Thrift Supervision has proposed a detailed method of valuation for purchased mortgage servicing rights but may relieve institutions of the expense of an outside appraisal if the PMSR don't exceed 25% of core capital.
The proposed thrift bulletin is consistent with, but contains a much more detailed methodology than the current Thrift Bulletin 43, which prescribes a method for valuing excess servicing.
"Some thrifts may not like the proposed thrift bulletin but it win be hard to craft a principled response if you want to complain about it," said Brian Smith, executive vice president of the Savings and Community Bankers of America. OTS is seeking comments on five questions:
* Should thrifts that are not "problem" institutions and that have less than 25% of core capital invested in PMSR be excused from the independent appraisal requirement and, if so, is the 25% cutoff appropriate?
* Should the discount rate used to calculate PMSR book value be at least as high as that used at purchase?
* Should PMSR book value amortization be limited to 15 years?
* Should outside brokers be allowed to appraise a thrift's PMSR if they are working with the institution or have been involved in the sale of more than 10% of the institution's current PMSR portfolio?
* Should independent appraisers be required to verify on-site the accuracy of a thrift's PMSR computer records?
The current OTS capital rule limits PMSR for inclusion in regulatory capital to the lowest of 90% of original cost, 90% of fair market value or 100% of the remaining unamortized book value. In addition, an OTS capital rule holds that any value of PMSR in excess of 50% of capital must be subtracted for regulatory capital purposes.
The proposed thrift bulletin contains several guidelines for valuing PMSR. The guidelines state that interest rates used to project interest income and expenses must be consistent with market expectations reflected in the Treasury yield curve.