Interagency Guidance on Accounting and Reporting for Certain Loans Held for Sale

The Federal Deposit Insurance Corporation (FDIC) and the other federal financial institution regulatory agencies have jointly issued the attached Interagency Guidance on Certain Loans Held for Sale . The guidance addresses the appropriate accounting and reporting treatment for certain loans that are sold directly from the loan portfolio or transferred to a held-for-sale account.

The guidance applies when:

• an institution decides to sell loans that were not originated or otherwise acquired with the intent to sell, and
• the fair value of those loans has declined for any reason other than a change in the general market level of interest or foreign exchange rates.

Selling loans has become an increasingly important portfolio risk-management tool for institutions seeking to manage concentrations, change risk profiles, improve returns, and generate liquidity. Examiners, however, have noted differences among institutions in the accounting for and reporting of these transactions. Specifically, accounting inconsistencies relate to how and where initial and subsequent fair value adjustments are recorded, and the reporting of past due and nonaccrual loans that have been designated as held for sale.

The interagency guidance clarifies existing instructions and promotes accounting transparency consistent with generally accepted accounting principles. The guidance reminds institutions to appropriately report reductions in the value of loans transferred to held for sale through a write-down of the recorded investment to fair value upon transfer. At the same time, there should be a charge to the institution's allowance for loan and lease losses. Institutions are also reminded that loans transferred to a held-for-sale account should continue to be accorded the same past due and nonaccrual treatment as other loans.

In a letter to the agencies dated March 26, 2001, the Securities and Exchange Commission (SEC) said that the interagency guidance will assist in promoting consistency in the accounting and reporting for loan sales and transfers of loans to held-for-sale accounts. A copy of the SEC's letter can be obtained at https://archive.fdic.gov/view/fdic/1986.

For more information, please contact Robert F. Storch, Chief of the Division of Supervision's Accounting Section, at 202-898-8906, or Doris L. Marsh, Examination Specialist in the Accounting Section, at 202-898-8905.

Michael J. Zamorski
Acting Director

Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-276-6003 or (703) 562-2200).