Financial Services—Mortgage Banking

This Subtopic governs how a mortgage banking enterprise accounts for fees it pays to permanent investors to assure the ultimate sale of residential or commercial loans. Such commitment fees are expensed when the loans are actually sold to the permanent investor, or earlier if it becomes evident the commitment will not be used. Because residential commitments typically cover blocks of loans, the fee is allocated to individual loan transactions on the ratio of the individual loan amount to the total commitment amount.

For students. Remember the direction of the payment: here the mortgage banker pays a fee to a permanent investor, so it is an expense deferred until the loans are sold (or the commitment lapses), not an immediate period cost. The common mistake is expensing the fee when paid rather than matching it to the loan sale, and forgetting the pro-rata allocation across the block of loans.

Machine-generated study aid for ASC 720-948. Check the source paragraphs below.