WASHINGTON - A thrift trade group is warning that thinks and thrifts may have to begin marking collateralized mortgage obligations to market value at the end of the month, if regulations aren't changed.
The problem arises because mortgage are being refinanced at a furious rate these days, the Savings and Community Bankers of America said in a letter to the four bank and thrift regulatory agencies.
High-risk Securities
As the mortgages that back a CMO are paid off, the income stream from the security dries up. Under current regulatory guidelines, the CMOs must then be classified as "high-risk securities" and financial institutions may be ordered by examiners to sell them.
The new mark-to-market rules, which take effect Wednesday, require financial institutions to differentiate between securities they intend to hold to maturity and those they plan to sell.
The Financial Accounting Standards Board, in developing the market value accounting rule, said institutions must take regulatory requirements into account as they classify assets.
The thrift group said financial institutions should not be required to sell CMOs or go through the exercise of marking them to market.
Meaningless Exercise?
One thrift executive said the market value accounting exercise would be meaningless.
"Initially, it would have a positive impact on us," said Brian Dittenhafer, president of Collective Federal Savings Bank, Egg Harbor, N.J. With rates so low, Collective Federal would add "something in the neighborhood of $20 million" to capital.
"But we don't plan to sell them, so we'd never realize the gain," he added.
