Extract
A change in the landscape.
With recent changes in accounting treatment, mortgage servicers will need to relearn the art of risk management. With originated servicing now on the balance sheet, lenders are entering a whole new environment, where hedging will be all important.
Last year marked the end of the golden age of independent mortgage banking. Gone are the days of true entrepreneurialism. Look for fewer full-service retail mortgage bankers and higher cost of entry to the industry, and all due to a simple accounting change. Welcome to a new era under Financial Accounting Statement (FAS) 122 with a bigger, wilder, more thrilling roller-coaster ride for earnings, demanding more capital and new ways to manage financial risk. The Financial Accounting Standards Board (FASB) pronouncement 122 modifies the treatment of mortgage servicing rights (MSR) from the way servicing had been treated under FAS 65. It eliminates the distinction between purchased mortgage servicing rights and originated mortgage servicing rights. FAS 122 sends thinly capitalized companies to the showers because it removes the accounting impediment for public capital and for publicly traded financial institutions to enter retail mortgage banking. The new accounting guidelines perpetuate the evolution of mo...See the full content of this document
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