FASB Rules on Accounting for Mortgage-Backed Securities

December 1998 Issue

FASB Rules on Accounting for Mortgage-Backed Securities

By Anthony J. Mancuso, CPA

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 134, Accounting for Mortgage-Backed Securities and Certain Other Interests Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, amending FASB Statement 65. SFAS 134 requires that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities and other beneficial interests based on its ability and intent to sell or hold those investments.

The statement also addresses the accounting for certain retained beneficial interests resulting from the securitization of mortgage loans "held for sale" under the provisions of Statement 65.

SFAS 134 is effective for the first fiscal quarter beginning after December 15, 1998. On the date the statement is initially applied, an enterprise may reclassify mortgage-backed securities and other beneficial interests retained after the securitization of mortgage loans held for sale from the trading category. Those securities and other interests shall be classified based on the entity's present ability and intent to hold those investments, according to this statement and Statement 115. An enterprise may also be required to reclassify other beneficial interests retained after the securitization of mortgage loans held for sale into the trading category. Transfers from or into the trading category that result from implementing this statement shall be accounted for in accordance with paragraph 15(a) or 15(b) of Statement 115. *