For quite a while, it seemed that every change to GAAP was primarily directed at the financial institutions industry.
While we in the industry have not been the recipients of major new accounting guidance recently, rest assured FASB has not been idle. The new revenue recognition standard issued in 2014 becomes effective in 2018 for public entities, and the year thereafter for other entities. FAS ASC 606 Revenue from Contracts with Customers will have a major effect on software and real estate companies. Our mortgage banking clients have asked us how the new standard will affect them. We believe the standard will have relatively minor effect because major elements of mortgage banking have been scoped out including:
- Mortgage servicing rights – FAS ASC 606-10-15-2c 9 – accounting should continue to be done in accordance with FAS ASC 860, Transfers and Servicing.
- Mortgage banking derivatives – interest rate lock commitments and mandatory forward loan sales commitments – FAS ASC 606-10-15-2c 7 – accounting should continue to be done in accordance with FAS ASC 815, Derivatives and Hedging.
- Best efforts forward sales contracts FAS ASC 606-10-15-2c 8 – accounting should continue to be done in accordance with FAS ASC 825, Financial Instruments.
- Guarantee such as those under the Federal Home Loan Banks MPF® program – FAS ASC 606-10-15-2d – accounting should continue to be done in accordance with FAS ASC 460, Guarantees.
We note that FAS ASC 860 addresses sub-servicing as well as mortgage servicing rights and believe that the same scope exemption for mortgage servicing applies to sub-servicing.