The accounting and regulatory reporting for mortgage banking activities is relatively complex.
For example, locking in a rate with a borrower for a loan to be sold into the secondary market creates a derivative that must be accounted for and reported at fair value. As another example, mortgage servicing rights retained from the sale of a loan can be accounted for at fair value or under the amortization method. Loans sold to the Federal Home Loan Banks under the MPF® program create an additional level of complexity because they are often sold with limited recourse. The resulting credit enhancement obligation amount must be included in the calculation of regulatory net worth.
Now in its 10th edition, our Accounting and Regulatory Guide addresses the issues related to mortgage banking activities in general, as well as the specific issues related to the MPF program. The guide is designed to provide practical how-to advice with specific examples, including journal entries and specific call report reporting references.
Our latest edition provides guidance related to the requirements of BASEL III, including the regulatory limits for mortgage servicing rights and the calculation of risk-weighted assets under the Simplified Supervisory Formula Approach (“SSFA”). We offer a complimentary SSFA calculation model for your use as well. In addition, our new guide provides advice related to the use of the Community Bank Leverage Ratio (CBLR ) for those who want to avoid complexities of calculating risk-weighted assets to determine regulatory net worth. We note that this updated version includes the interim final rules Section 4012 of the Coronavirus Aid, Relief and Economic Security Act.
We have also included guidance on accounting for the MPF program under CECL.