Wiley GAAP 2008

Mortgage Banking: Perspective and Issues

Mortgage banking comprises two activities.

1. The origination or purchase of mortgage loans and subsequent sale to permanent investors, and

2. Long‐term servicing of the mortgage loan.

To the extent that mortgage banking activities discussed in this section may be undertaken by subsidiaries or divisions of commercial banks or savings institutions, the same accounting and reporting standards apply. Normal, nonmortgage lending of those enterprises, however, is accounted for in accordance with the lender's normal accounting policies for such activities.

Mortgage loans held for sale are valued at the lower of cost or market. Mortgage‐backed securities are reported under FAS 115 as held‐to‐maturity, trading, or available‐for‐sale, depending on the entity's intent and ability to hold the securities.

Loan origination fees and related direct costs for loans held for sale are capitalized as part of the related loan and amortized, using the effective yield method. However, fees and costs associated with commitments to originate, sell, or purchase loans are treated as part of the commitment, which is a derivative accounted for under FAS 133.

Loan origination fees and costs for loans held for investment are deferred and recognized as an adjustment to the yield.

SOP 01‐6, Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others, provides uniform and consistent guidance for the accounting and ...