Summary of Statement No. 122
Summary of Statement No. 122
Accounting for Mortgage Servicing Rights--an amendment of FASB Statement No. 65 (Issued 5/95)
Summary
This Statement amends FASB Statement No. 65, Accounting for
Certain Mortgage Banking Activities, to require that a mortgage
banking enterprise recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are
acquired. A mortgage banking enterprise that acquires mortgage
servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing
rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values if
it is practicable to estimate those fair values. If it is not
practicable to estimate the fair values of the mortgage servicing
rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing or originating the loans
should be allocated to the mortgage loans (without the mortgage
servicing rights) and no cost should be allocated to the mortgage
servicing rights.
This Statement requires that a mortgage banking enterprise assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. A mortgage banking enterprise should stratify its mortgage servicing rights that are capitalized after the adoption of this Statement based on one or more of the predominant risk characteristics of the underlying loans. Impairment should be recognized through a valuation allowance for each impaired stratum.
This Statement applies prospectively in fiscal years
beginning after December 15, 1995, to transactions in which a
mortgage banking enterprise sells or securitizes mortgage loans
with servicing rights retained and to impairment evaluations of all
amounts capitalized as mortgage servicing rights, including those
purchased before the adoption of this Statement. Earlier
application is encouraged. Retroactive capitalization of mortgage
servicing rights retained in transactions in which a mortgage
banking enterprise originates mortgage loans and sells or
securitizes those loans before the adoption of this Statement is
prohibited.