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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 4, 2008 4:03 PM ET
Last week, the Financial Accounting Standards Board quietly and unanimously rejected an appeal by mortgage bankers to cut them a break on the accounting for troublesome mortgage loans. The seven members of FASB voted not to add a project to its agenda addressing the issue first raised by the Mortgage Bankers Association (MBA) in December. “The Board agreed with the [FASB] staff recommendation, and I believe this closes the issue,” said FASB spokeswoman Christine Klimek. At question was how banks holding mortgage loans—predominantly of the subprime, adjustable-rate variety—would account for the thousands of modifications to loan terms that are expected to be made to avoid a huge wave of foreclosures down the road. The MBA was hoping that FASB would allow bankers to assess the impairments to the loans according to FAS 5 rather than FAS 114. The trade group asserted the banks did not have the capability to undertake FAS 114 assessments for the thousands of loans in question. Under FAS 5, they could make a simpler evaluation of whether the principal amount of a loan was likely to be paid back. By contrast, FAS 114 requires banks to use fair value to assess a questionable home loan. It also requires a mortgage provider to calculate future cash flows from principal and interest payments on the loan. The standard, issued after inflated real estate loans decimated the savings and loan industry in the early 1990s, is far more likely to produce an impairment that would then have to be reflected in earnings. The FASB staff cited a number of reasons for its recommendation. First, the board said the guidance in FAS 114 is clear regarding the accounting treatment for troubled debt restructurings—including smaller balance mortgages. FASB also said the staff is “concerned that by permitting a statement 5 approach, no losses would be recognized.” In addition, FASB noted that the accounting relief, if granted, would create another difference with international financial reporting standards, which do not provide exceptions to the rule. Alison Utermohlen, senior director of government affairs for the MBA, said that members would respect the FASB decision. Ms. Utermohlen also said she didn’t expect the extra accounting workload to limit the loan modifications banks would undertake. “We’re disappointed. We think it’s going to create more administrative costs with questionably little improvement in financial reporting,” said Ms. Utermohlen. “However, our members respect the FASB decision and they will do what they have to to comply with the rules.” FASB noted in its decision that FAS 114 has been around for 13 years. Indeed, the staff rather bluntly suggested that bankers should have been prepared for this: “The staff believes that lenders should consider the costs to comply with Statement 114’s requirements when continuing to offer teaser-rate loan programs.”
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