Bankers can breathe easier now over their holdings of common mortgage derivatives.

The Federal Financial Institutions Examination Council last week sent a letter to thrift and bank chief executive officers clarifying one of its earlier policy statements.

That policy was interpreted by auditors as effectively forcing institutions to use an unfavorable mark-to-market accounting treatment for the $200 billion in collateralized mortgage originations held industry wide.

Marti Sworobuk, who handles accounting issues at the Savings and Community Bankers of America, praised the move.

"We knew that the regulators did not intend to prohibit financial institutions from holding CMOs as investments."

"With this clarification, financial institutions can rest assured that CMOs" can qualify for favorable accounting treatment, she said.

The coordinating agency for all five bank regulators said banks and thrifts may place those mortgage securities in the held-to-maturity category, which allows banks to account for the CMOs at the price paid for them, rather than the price at which they could be sold.

CMOs are bonds backed by the cash flow from a pool of mortgages, in which regular principal and interest payments are separated into different payment streams.

At a November 1993 meeting, a Financial Accounting Standards Board task force threw into question the accounting treatment for CMOs.

It did so by interpreting a FFIEC policy noting that examiners could force. institutions to divest themselves of high-risk mortgage securities to mean that institutions could not be sure they could hold those instruments to maturity.

Therefore, the task force said that banks' holdings of such securities had to be placed under less-favorable accounting treatment, in a category called available for sale."

"A number of financial institutions have reclassified their CMO holdings to the available-for-sale category," Ms. Sworobuk said.

The FFIEC's move, "will enable them to go back and place them in the held-to-maturity category."

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