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FIL-39-05 Attachment Page 2

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The Agencies previously issued instructional clarifications that summarized the reporting requirements for derivatives, including mortgage loan commitments, to assist institutions in properly applying the requirements of FAS 133 when preparing their regulatory reports. Based on the Agencies' review of regulatory reports, it is evident that some institutions are not following the appropriate accounting and reporting for commitments to originate mortgage loans that will be held for resale and agreements to sell mortgage loans. Some commonly noted issues are:

  • Including the value of mortgage servicing rights in the value of loan commitments that meet the definition of a derivative;
  • Reporting the value of loan sales agreements that meet the definition of a derivative as assets when in fact they were liabilities and vice versa; and
  • Failing to report these derivatives and changes in the fair values of the derivatives within their balance sheets and income statements.

Accordingly, this advisory provides additional guidance on the application of FAS 133. In addition, the Agencies expect all institutions, including those that are not required to file reports with the Securities and Exchange Commission (SEC), to follow the guidance in SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB 105).