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FIL-39-05 Attachment Page 1
Notes
 

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Executive Summary

This advisory provides supplemental guidance on the appropriate accounting and reporting for commitments to:

  • Originate mortgage loans that will be held for resale, and
  • Sell mortgage loans under mandatory delivery and best efforts contracts.

Commitments to originate mortgage loans that will be held for resale are derivatives and must be accounted for at fair value on the balance sheet by the issuer. All loan sales agreements, including both mandatory delivery and best efforts contracts, must be evaluated to determine whether the agreements meet the definition of a derivative under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended by Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (collectively, FAS 133). Institutions should also account for loan sales agreements that meet the definition of a derivative at fair value on the balance sheet.

The advisory discusses the characteristics that should be considered in determining whether mandatory delivery and best efforts contracts are derivatives and the accounting and regulatory reporting treatment for both commitments to originate mortgage loans that will be held for resale and those loan sales agreements that meet the definition of a derivative. The advisory also addresses the guidance that should be considered in determining the fair value of derivatives. A simplified example is included to provide general guidance on one approach that may be used to value commitments to originate mortgage loans that will be held for resale.

The Agencies1 believe the accounting guidance in this advisory is consistent with generally accepted accounting principles (GAAP). Institutions are expected to apply the guidance in this advisory when preparing their regulatory reports.

1 The Agencies are the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of Thrift Supervision (OTS).