# ASC 860-50-40: Transfers and Servicing — Servicing Assets and Liabilities — 40 Derecognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/860/50/#40-derecognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:b78db759fdca47379130aeeea899ee8fa82d00d945281cbd29cc15a582a17fb4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 860-50-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/860/50/#40-derecognition) SEC content: no ##### [860-50-40-1](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:9d84e8f3350b0ddf04f88f4843096cd394b9c7164a79f3c543fa05c6fa097917 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section is organized as follows: 1. a Overall 2. b [Transfers](https://asc.understandingaccounting.org/glossary/t/#transfer "The conveyance of a noncash financial asset by and to someone other than the issuer of that financial asset. A transfer includes the following: Selling a receivable Putting a receivable into a securitization trust Posting a receivable as collateral. A transfer excludes the following: The origination of a receivable Settlement of a receivable The restructuring of a receivable into a security in a troubled debt restructuring.") with a subservicing contract 3. c Transfers involving participation in an income stream. #### Overall ##### [860-50-40-2](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:c606d5c3b82815f41462b90d13f99c6bbfa310c3e2b5aa903f68c42e91ff2dad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following criteria shall be considered when evaluating whether a transfer of servicing rights qualifies as a sale: 1. a Whether the [transferor](https://asc.understandingaccounting.org/glossary/t/#transferor "An entity that transfers a financial asset, an interest in a financial asset, or a group of financial assets that it controls to another entity.") has received written approval from the investor if required. 2. b Whether the [transferee](https://asc.understandingaccounting.org/glossary/t/#transferee "An entity that receives a financial asset, an interest in a financial asset, or a group of financial assets from a transferor.") is a currently approved transferor-servicer and is not at risk of losing approved status. 3. c If the transferor finances a portion of the sales price, whether an adequate nonrefundable down payment has been received (necessary to demonstrate the transferee's commitment to pay the remaining sales price) and whether the note receivable from the transferee provides full [recourse](https://asc.understandingaccounting.org/glossary/r/#recourse "The right of a transferee of receivables to receive payment from the transferor of those receivables for any of the following: Failure of debtors to pay when due The effects of prepayments Adjustments resulting from defects in the eligibility of the transferred receivables.") to the transferee. Nonrecourse notes or notes with limited recourse (such as to the servicing) do not satisfy this criterion. 4. d Temporary servicing performed by the transferor for a short period of time shall be compensated in accordance with a subservicing contract that provides [adequate compensation](https://asc.understandingaccounting.org/glossary/a/#adequate-compensation "The amount of benefits of servicing that would fairly compensate a substitute servicer should one be required, which includes the profit that would be demanded in the marketplace. It is the amount demanded by the marketplace to perform the specific type of servicing. Adequate compensation is determined by the marketplace; it does not vary according to the specific servicing costs of the servicer."). ##### [860-50-40-3](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:097b8438009077c2b91df9bdc4997b81a7667daa84dd2e83bae20f8cb4887874 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Also, the following additional criteria shall be considered when evaluating whether a transfer of servicing rights qualifies as a sale: 1. a Title has passed. 2. b Substantially all risks and rewards of ownership have irrevocably passed to the buyer. 3. c Any [protection provisions](https://asc.understandingaccounting.org/glossary/p/#protection-provisions "Provisions in some contracts to sell or transfer mortgage servicing rights that could affect the amount ultimately paid to the transferor. For example, the transferor may agree to adjust the sales price for loan prepayments, defaults, or foreclosures that occur within a specified period of time.") retained by the [seller](https://asc.understandingaccounting.org/glossary/s/#seller "A transferor that relinquishes control over financial assets by transferring them to a transferee in exchange for consideration.") are minor and can be reasonably estimated. ##### [860-50-40-4](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:b6dbb9eaa68fe8988ce92953bbfabd42492170b0bcd1f15a1f6dd7bb4ad67600 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a sale is recognized and minor protection provisions exist, a liability shall be accrued for the estimated obligation associated with those provisions. The seller retains only minor protection provisions if both of the following conditions are met: 1. a The obligation associated with those provisions is estimated to be no more than 10 percent of the sales price. 2. b Risk of prepayment is retained for no longer than 120 days. ##### [860-50-40-5](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:012883fd5e08da4a7c37ce9537226fe5f413de700fa6c34ec20d60b00c1693ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A temporary subservicing contract in which the subservicing will be performed by the transferor for a short period of time would not necessarily preclude recognizing a sale at the closing date. ##### [860-50-40-6](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:70f164e98f6fbafbea74ac95c293442cb98f6d2ac0f5da57a7ccd525ba18d016 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The criteria in paragraphs [860-50-40-2 through 40-4](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-2) apply to transfers of servicing rights relating to loans previously sold and to transfers of servicing rights relating to loans that are retained by the transferor. The carrying amount of servicing rights sold relating to loans that have been retained shall be allocated at the date of sale between the servicing rights and the loans retained using relative fair values. #### Sales of Servicing Rights with a Subservicing Contract ##### [860-50-40-7](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:6f1bcc83c6ae49510f04f9d4d7766cb7b719b9c357446b76f8e87646d371dbbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A sale of mortgage servicing rights with a subservicing contract shall be treated as a sale with gain deferred if substantially all the risks and rewards inherent in owning the mortgage servicing rights have been effectively transferred to the transferee, as discussed in paragraph [860-50-40-3](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-3). Attributes of the transferee (for example, ability to perform servicing) would not be significant to the accounting for the transaction. The risks and rewards associated with a transferor performing purely administrative functions under a subservicing contract would not necessarily preclude sales treatment. A loss shall be recognized currently if the transferor determines that prepayments of the underlying mortgage loans may result in performing the future servicing at a loss. ##### [860-50-40-8](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-8) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:4fa2f20b5343c768845d8f2470f73db6632983d5984363165f02fbd9b81a3f99 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Substantially all the risks and rewards inherent in owning the mortgage servicing rights have not been transferred to the transferee and, therefore, the transaction shall be accounted for as a financing if any of the following factors are present: 1. a The transferor-subservicer directly or indirectly guarantees a yield to the transferee. For example, the transferor-subservicer guarantees prepayment speeds or maximum loan default ratios to the buyer. 2. b The transferor-subservicer is obligated to advance a portion or all of the servicing fees on a nonrecoverable basis to the transferee before receipt of the loan payment from the mortgagor. 3. c The transferor-subservicer indemnifies the transferee for damages due to causes other than failure to perform its duties under the terms of the subservicing contract. 4. d The transferor-subservicer absorbs losses on mortgage loan foreclosures not covered by the Federal Housing Administration, Department of Veterans Affairs, or other guarantors, if any, including absorption of foreclosure costs and costs of managing foreclosed property. 5. e Title to the servicing rights is retained by the transferor-subservicer. ##### [860-50-40-9](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-9) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:21f49e1090470d5a3a7a21c98e709519224c8fe17496fc7029b52eca636729bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The presence of any of the following factors creates a rebuttable presumption that substantially all the risks and rewards inherent in owning the mortgage servicing rights have not been transferred to the transferee and that the transaction shall be accounted for as a financing: 1. a The transferor-subservicer directly or indirectly provides financing or guarantees the transferee's financing. Nonrecourse financing, for example, would indicate that risks have not been transferred to the transferee. Topic 450 requires a guarantor to recognize, at inception of the guarantee, a liability for the obligation undertaken in issuing the guarantee. 2. b The terms of the subservicing contract unduly limit the transferee's ability to exercise ownership control over the servicing rights or result in the seller's retaining some of the risks and rewards of ownership. For example, if the transferee cannot cancel or decline to renew the subservicing contract after a reasonable period of time, the transferee is precluded from exercising certain rights of ownership. Conversely, if the transferor cannot cancel the subservicing contract after a reasonable period of time, the transferor has not transferred substantially all of the risks of ownership. 3. c The transferee is a special-purpose entity without substantive capital at risk. #### Sales of Servicing Rights for Participation in an Income Stream ##### [860-50-40-10](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-10) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:f191d9bf09eca3efb8798deefe4b0653629f7e272c6c1ceb95e3619e8b81db9a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following addresses a situation in which an entity sells the right to service mortgage loans that are owned by other parties. The related mortgage loans have been previously sold, with servicing retained, in a separate transaction. Because of the ability to invest the float that results from payments received from borrowers but not yet passed to the owners of the mortgages, the mortgage servicing rights can be sold for immediate cash or for a participation in the future interest stream of the loans. ##### [860-50-40-11](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-11) Pending content: no Source downloaded (UTC): 2026-09-10T02:08:20.155Z to 2026-09-10T02:08:20.155Z Record version: sha256:c33a69008a755e763020bb4a16eaa17c2e2904094e943d913da5d9b3b33954ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a transfer of mortgage servicing rights qualifies as a sale under the criteria beginning in paragraph [860-50-40-2](https://asc.understandingaccounting.org/asc/860/50/#860-50-40-2) and the sale is for a participation in the future interest income stream, gain recognition is appropriate at the sale date. There are difficulties in measuring the amount of the gain if the sales price is based on a participation in future payments and there is no specified upper limit on the computed sales price. The transferor of mortgage servicing rights shall consider all available information, including the amount of gain that would be recognized if the servicing rights were to be sold outright for a fixed cash price.