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.