FASB proposes update to residential mortgage servicing rights guidance

FASB is seeking feedback on a proposed Accounting Standards Update (ASU) that addresses stakeholder concerns regarding accounting guidance for residential mortgage servicing rights. A residential mortgage servicing right, according to a news release, represents the contractual right to service an underlying residential mortgage loan.

The public comment period is open through Nov. 9.

The proposed amendments require an entity to include the effects of recapture when measuring a residential mortgage servicing right by specifying that an entity must value all rights and obligations associated with a residential mortgage servicing contract, including recapture, in accordance with Topic 820, Fair Value Measurement. Recapture refers to a mortgage servicer’s ability to solicit a borrower to refinance an existing mortgage loan and retain the servicing rights on the new loan.

According to the news release, stakeholders have noted that current guidance does not specifically state whether the value attributable to recapture should be included when measuring a residential mortgage servicing right, which has resulted in diversity in practice and reduced comparability.

The ASU is based on a recommendation from FASB’s Emerging Issues Task Force.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.