The New York State Society of CPAs is asking the Financial Accounting Standards Board to expand a proposal that would standardize the treatment of foreclosed properties when they are backed by a loan from the U.S. Department of Housing and Urban Development beyond the residential developments that were the focus of the original draft proposal.

“The guidance needs to apply to not just residential housing, but to all types of government guaranteed programs, such as those covering hospitals and nursing homes” said Sharon Sabba Fierstein, a member of the NYSSCPA’s Accounting and Auditing Oversight Committee, in a statement. “We believe that the way the proposal was written, a reader would conclude it only covered single family mortgages, rather than also the multi-family and healthcare mortgages insured by HUD programs.”

The NYSSCPA sent a comment letter last month to FASB technical director Susan M. Cosper explaining the society's position on the proposal.

Under some government programs, typically those offered by HUD’s Federal Housing Administration, creditors that issue certain residential mortgage loans receive a guarantee that they will be paid by the government in the case of a default.

While U.S. GAAP standards on troubled debt restructurings offer guidance for situations in which a creditor receives a debtor’s assets, it does not offer guidance regarding the classification of foreclosed loans that are government guaranteed, according to the NYSSCPA. As a result, creditors are reclassifying the loans inconsistently, with some reclassifying the loans as real estate, and others reclassifying them as other receivables.

FASB’s proposal would require that residential mortgage loans be de-recognized if the loan has a government guarantee inseparable from the loan before foreclosure, with a full separate other receivable being recognized upon foreclosure, the NYSSCPA pointed out. This can only happen, however, if the creditor plans to make a claim on the guarantee and the ability to recover the full unpaid principal balance of the loan through the guarantee.

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