What is initial recording of mortgage servicing rights?

August 24, 2022 by Robert Jensen

What is initial recording of mortgage servicing rights?

Initial Recording of Mortgage Servicing Rights. After a loan is sold servicing retained and control of the loan is surrendered, the MSR should be capitalized at fair value and subsequently accounted for using either the amortization or fair value method.

How are mortgage servicing rights (MSRs) amortized?

After initially recoding MSRs at fair value, when utilizing the amortization method, commonly referred to as LOCOM or Lower of Cost or Market, MSRs are amortized over the estimated economic life of the mortgage in proportion to the anticipated future net servicing revenue generated from servicing the loan.

What happens to the loan servicing rights when a loan originates?

Generally, when a lender originates a mortgage loan, the lender may retain the loan and the servicing function for the loan in its portfolio, sell the loan along with the mortgage servicing rights to another party, or separate the mortgage servicing rights (MSRs) from its mortgage loan and transfer only the loan or the MSRs to another party.

What is the amortization method for servicing assets?

Amortization method: Amortize the servicing asset in proportion to and over the period of estimated net servicing income (level yield method) and assess servicing assets for impairment based on fair value at each reporting date.

What is initial recording of mortgage servicing rights?

May 3, 2022 by Robert Jensen

What is initial recording of mortgage servicing rights?

Initial Recording of Mortgage Servicing Rights. After a loan is sold servicing retained and control of the loan is surrendered, the MSR should be capitalized at fair value and subsequently accounted for using either the amortization or fair value method.

Are mortgage servicing rights (MSRs) in excess of fair value?

Accounting for Mortgage Servicing Rights amounts are not in excess of their estimated fair value. Impairment in fair value is recorded directly to the MSR asset under the fair value method and no valuation allowance is need ed. Changes in fair value of MSRs are not taxable.

Who pays the servicer for servicing a mortgage?

The original lender pays the servicer a fee for performing this work. Nothing changes for the mortgagor except the address to which payments are sent. MSRs have ongoing administrative duties that are regularly processed for the entire length of a mortgage.

How are mortgage servicing rights treated under the existing rule?

Under the existing rule, mortgage servicing rights, net of related deferred tax liabilities, that are in excess of 10% of common equity or when combined with certain other deduction items are in excess of 15% of common equity are deducted from Common Equity Tier 1 (CET1) capital.