ASC

ASC 340-948

Financial Services—Mortgage Banking

340 Other Assets and Deferred Costs

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In brief

IntermediateInitial measurementSubsequent measurementIndustry-specificRecognition

This Subtopic governs the accounting for the cost of issuing certain Government National Mortgage Association (GNMA) securities by mortgage banking entities. Issuers electing the internal reserve method must capitalize the one month's interest cost required to be paid to a trustee (340-948-25-1), subject to a ceiling equal to the present value of net future servicing income (340-948-30-1). The capitalized amount is then amortized in proportion to, and over the period of, estimated net servicing income (340-948-35-1).

Key points (6)
  • One month's interest cost that issuers of GNMA securities electing the internal reserve method must pay to a trustee shall be capitalized (340-948-25-1).
  • The aggregate amount capitalized, including amounts capitalized under other provisions of the Subtopic, shall not exceed the present value of net future servicing income, discounted at an appropriate long-term interest rate (340-948-30-1).
  • Estimated future servicing revenue used in the ceiling test includes expected late charges and other ancillary revenue (340-948-30-1).
  • Estimated future servicing costs include direct costs of performing the servicing function plus appropriate allocations of other costs, and may be determined on an incremental cost basis (340-948-30-1).
  • The capitalized amount is amortized in proportion to, and over the period of, estimated net servicing income—the excess of servicing revenues over servicing costs (340-948-35-1).
  • The scope of this Subtopic follows the Overall Subtopic scope in Section 948-10-15 (340-948-15-1).

For students. This is a narrow, industry-specific deferral rule: the one month's trustee interest is an asset, not an immediate expense, but only up to the present value of net future servicing income. A common misunderstanding is treating the cap as applying only to this cost—it is an aggregate ceiling that includes amounts capitalized under other provisions of Topic 948.

gnma securitiesinternal reserve methodcapitalized issuance costpresent value of net future servicing incomeservicing revenues and costsamortization of deferred costsmortgage banking

Machine-generated study aid for ASC 340-948. Check the source paragraphs below.

340-948-05Overview and Background

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340-948-05-1
This Subtopic addresses the accounting for costs of issuing certain Government National Mortgage Association (GNMA) securities.

340-948-15Scope and Scope Exceptions

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Overall Guidance

340-948-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 948-10-15.

340-948-25Recognition

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Costs of Issuing Certain GNMA Securities

340-948-25-1
One month's interest cost, which is required to be paid to a trustee by issuers of Government National Mortgage Association (GNMA) securities electing the internal reserve method, shall be capitalized.

340-948-30Initial Measurement

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Costs of Issuing Certain GNMA Securities

340-948-30-1
The aggregate amount capitalized, including amounts capitalized under other provisions of this Subtopic, shall not exceed the present value of net future servicing income. The rate used to determine the present value shall be an appropriate long-term interest rate. For this purpose, estimates of future servicing revenue shall include expected late charges and other ancillary revenue. Estimates of expected future servicing costs shall include direct costs associated with performing the servicing function and appropriate allocations of other costs. Estimated future servicing costs may be determined on an incremental cost basis.

340-948-35Subsequent Measurement

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Costs of Issuing Certain GNMA Securities

340-948-35-1
The amount capitalized shall be amortized in proportion to, and over the period of, estimated net servicing income—the excess of servicing revenues over servicing costs.

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