The Mortgage Bankers Association has written to the Financial Accounting Standards Board asking for more flexibility in accounting for troubled mortgages to help prevent foreclosures.
The MBA wants to be able to measure impairments of residential mortgage loans that are troubled debt restructurings under Financial Accounting Standard 5, "Accounting for Contingencies," rather than FAS 114, "Accounting for Creditors for Impairment of a Loan." The request follows on the heels of a letter that the MBA sent in December to FASB Chairman Robert Herz.
This week, the MBA followed up with answers to some of FASB's questions. The MBA argued that if the number of home mortgage failures had been anticipated, the accounting rules would have been more flexible to include more troubled debt restructurings.
"Our members also believe that if both the mortgage lending industry and the board had known during the drafting of FAS 114 that potentially tens, and perhaps hundreds, of thousands of smaller-balance, homogeneous loans that are collectively evaluated for impairment could one day be subject to FAS 114 initially and on an ongoing basis that the scope exception in 6.a. would have been written more broadly to include modified loans that are TDRs," wrote Alison B. Utermohlen, senior director of government affairs at the MBA. "Unfortunately no one at that time, the MBA included, could have foreseen a day in which thousands of loans that are in default (or in reasonably foreseeable default) might be modified within the same reporting periods."
The Securities and Exchange Commission is also contemplating loosening the accounting rules to allow mortgage companies to renegotiate some adjustable rate mortgages without requiring them to put the mortgages on their balance sheets.
SEC Chief Accountant Conrad Hewitt wrote a letter to the American Institute of CPAs and Financial Executives International offering guidance on whether mortgage servicers could freeze the initial interest rates on up to 1.8 million adjustable rate mortgages for another five years after the loans were supposed to reset, as was recommended by a recent American Securitization Forum framework. But Hewitt emphasized that the guidance was only an interim step and that his letter had not been approved by the commission. His office is asking FASB to address the issue.
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