ASC

ASC 948-10

Overall

948 Financial Services—Mortgage Banking

Download JSONDownload Markdown18 paragraphs · 4 sectionsJump to summary

Source downloaded: .Record version ab7e784d486f. Effective date must be checked in the source.

In brief

IntermediateDisclosureIndustry-specificFinancial instruments

ASC 948-10 is the Overall subtopic for mortgage banking, providing background on the two core mortgage banking activities—originating/purchasing loans for sale to permanent investors and subsequently servicing those loans—and defining the Topic's scope. Its only substantive requirements are disclosures about minimum net worth (capital) requirements imposed by secondary market investors and state regulators, including whether the entity complies and the effects of noncompliance. The Topic supplies only incremental industry guidance; entities must also apply all other applicable GAAP.

Key points (7)
  • Mortgage banking activities consist of two separate but interrelated activities: purchase or origination of mortgage loans and their sale to permanent investors, and the subsequent long-term servicing of those loans (948-10-05-4).
  • The Topic applies to mortgage banking entities and to mortgage banking operations of other entities such as commercial banks and thrifts, but not to those entities' normal lending activities (948-10-15-2 through 15-3).
  • The Topic does not apply to commitments to originate mortgage loans held for sale, or to fees and costs on commitments to sell or purchase loans accounted for as derivatives under Topic 815 (948-10-15-4).
  • An entity subject to minimum net worth requirements from secondary market investors or state mandates must disclose a description of those requirements, the actual or possible material effects of noncompliance, and whether it is in compliance, including required and actual net worth amounts as of each balance sheet date (948-10-50-3).
  • If not in compliance at the most recent balance sheet date, the entity must disclose the possible material effects of that condition on the amounts and disclosures in the notes (948-10-50-3(d)); noncompliance may also raise substantial doubt about going concern, prompting the additional disclosures listed in 948-10-50-4.
  • Servicers with net worth requirements from multiple sources must disclose the requirement under significant servicing covenants with common secondary market investors (HUD, FNMA, GNMA, FHLMC), any other investor whose violation would significantly adversely affect the business, and the most restrictive third-party agreement (948-10-50-5).
  • Retained mortgage servicing rights have economic value when servicing fees exceed the cost of servicing, and such rights are frequently bought and sold (948-10-05-7); loan and commitment fee accounting is governed by Subtopic 310-20 (948-10-05-8).

For students. Remember that 948-10 itself is mostly scope and disclosure—the measurement rules live in 948-310 (loans held for sale at LOCOM), 948-405, and 860-50 (servicing rights). A common misunderstanding is thinking the Topic covers all bank lending; it reaches only mortgage banking–type operations, not a bank's normal lending activities.

mortgage banking entityloans held for salemortgage servicing rightspermanent investorsminimum net worth requirementssecondary market investorscapital adequacy disclosuregoing concern doubt

Machine-generated study aid for ASC 948-10. Check the source paragraphs below.

948-10-00Status

Source downloaded: .Record version e65cf1e02009. Effective date must be checked in the source.

948-10-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
Permanent Investor Added Maintenance Update 2017-06 (PDF) 04/07/2017
948-10-05-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
948-10-05-4 Amended Maintenance Update 2017-06 (PDF) 04/07/2017

948-10-05Overview and Background

Source downloaded: .Record version 9c1ad7c0bff2. Effective date must be checked in the source.

948-10-05-1
The Financial Services—Mortgage Banking Topic establishes accounting and reporting standards for mortgage banking entities and entities that engage in certain mortgage banking activities. This Topic includes the following Subtopics:
  1. a
    Overall
  2. b
    Receivables
  3. c
    Other Assets and Deferred Costs
  4. d
    Subparagraph superseded by Accounting Standards Update No. 2014-09.
  5. e
    Other Expenses.
948-10-05-2
The Overall Subtopic provides general information concerning certain mortgage banking activities and specific guidance on capital disclosure requirements for mortgage banking entities.
948-10-05-3
As indicated in Section 948-10-15, while entities within the scope of this Topic must apply standards contained in all relevant Topics, the following are some of the more closely related Topics to the mortgage banking industry:
  1. a
    Guarantees
  2. b
    Consolidation
  3. c
    Financial Instruments
  4. d
    Interest
  5. e
    Transfers and Servicing.
948-10-05-4
Mortgage banking activities primarily consist of two separate but interrelated activities:
  1. a
    The purchase or origination of mortgage loans and the sale of the loans to permanent investors
  2. b
    The subsequent long-term servicing of the loans.
948-10-05-5
Mortgage loans are acquired for sale to permanent investors from a variety of sources, including the following:
  1. a
    Applications received directly from borrowers (in-house originations)
  2. b
    Purchases from realtors and brokers
  3. c
    Purchases from investors
  4. d
    Conversions of various forms of interim financing to permanent financing.
948-10-05-6
See Topic 310 for guidance on mortgage loan purchases.
948-10-05-7
A mortgage banking entity usually retains the right to service mortgage loans it sells to permanent investors. A servicing fee, usually based on a percentage of the outstanding principal balance of the mortgage loan, is received for performing loan administration functions. When servicing fees exceed the cost of performing servicing functions, the existing contractual right to service mortgage loans has economic value. Because of their value, rights to service mortgage loans frequently have been purchased and sold.
948-10-05-8
Mortgage banking entities may receive or pay nonrefundable loan and commitment fees representing compensation for a variety of services. Those fees may include components representing, for example, an adjustment of the interest yield on the loan, a fee for designating funds for the borrower, or an offset of loan origination costs. For guidance on accounting for loan and commitment fees, see Subtopic 310-20.

948-10-15Scope and Scope Exceptions

Source downloaded: .Record version 32c0caa1004c. Effective date must be checked in the source.

Overall Guidance

948-10-15-1
The Subtopics within the Financial Services—Mortgage Banking Topic only provide incremental industry-specific guidance for the entities defined in this Scope Section, or as further defined in the Scope Sections of the individual Financial Services—Mortgage Banking Subtopics. Entities within the scope of this Topic shall also comply with the applicable guidance not included in this Topic.

Entities

948-10-15-2
The guidance in the Financial Services—Mortgage Banking Topic applies to certain activities of mortgage banking entities.
948-10-15-3
The guidance in this Topic also applies to certain operations of other entities, such as commercial banks and thrift institutions, that may participate in any of the following activities:
  1. a
    Conduct operations that are substantially similar to the primary operations of a mortgage banking entity (for example, through subsidiaries or divisions)
  2. b
    Engage in transactions that involve mortgage activities or transactions but that do not consider themselves to be mortgage companies.
The guidance in this Topic does not apply, however, to the normal lending activities of those other entities.

Transactions

948-10-15-4
The guidance in this Topic does not apply to the following transactions:
  1. a
    Commitments related to the origination of mortgage loans to be held for sale
  2. b
    Fees and costs related to commitments to sell or purchase loans that are accounted for as derivatives under Topic 815.

948-10-50Disclosure

Source downloaded: .Record version 0cc56b5f14f8. Effective date must be checked in the source.

948-10-50-1
This Section provides capital requirements disclosure guidance for mortgage banking entities and entities with mortgage banking activities.
948-10-50-2
All of the following are capital disclosure requirements for mortgage entities and other activities within the scope of this Subtopic.
948-10-50-3
Noncompliance with minimum net worth (capital) requirements imposed by secondary market investors or state-imposed regulatory mandates could materially affect the economic resources of a mortgage banking entity and claims to those resources. To the extent an entity is subject to such requirements, the entity shall disclose all of the following in the notes to financial statements:
  1. a
    A description of the minimum net worth requirements related to secondary market investors and state-imposed regulatory mandates
  2. b
    The actual or possible material effects of noncompliance with those requirements
  3. c
    Whether the entity is in compliance with the regulatory capital requirements, including, as of each balance sheet date presented, both of the following with respect to quantitative measures:
    1. 1
      The entity's required and actual net worth amounts
    2. 2
      Factors that may significantly affect the adequacy of net worth such as potentially volatile components of capital, qualitative factors, or regulatory mandates.
  4. d
    If, as of the most recent balance sheet date, the entity is not in compliance with capital adequacy requirements, the possible material effects of such conditions on amounts and disclosures in the notes to financial statements.
948-10-50-4
Further, noncompliance with minimum net worth requirements may, when considered with other factors, raise substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. Additional information that might be disclosed in these situations may include the following:
  1. a
    Pertinent conditions and events giving rise to the assessment of substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time
  2. b
    Possible effects of such conditions and events
  3. c
    Management's evaluation of the significance of those conditions and events and any mitigating factors
  4. d
    Possible discontinuance of operations
  5. e
    Management's plans (including any relevant financial information)
  6. f
    Information about the recoverability or classification of recorded asset amounts or the amounts or classifications of liabilities.
948-10-50-5
Servicers with net worth requirements from multiple sources shall disclose, in the notes to financial statements, the net worth requirement of the following:
  1. a
    Significant servicing covenants with secondary market investors with commonly defined servicing requirements (Common secondary market investors include the U.S. Department of Housing and Urban Development, Federal National Mortgage Association [FNMA], Government National Mortgage Association [GNMA], and Federal Home Loan Mortgage Corporation [FHLMC].)
  2. b
    Any other secondary market investor where violation of the requirement would have a significant adverse effect on the business
  3. c
    The most restrictive third-party agreement if not included above.

Related subtopics