The Financial Accounting Standards Board (FASB) is on track to give investors in mortgage-backed securities a break in the way they determine other-than-temporary impairment for their fourth quarter financial reports.
FASB has issued a proposed staff position (FSP) that amends an impairment model, which required financial institutions to use "their best estimate of the cash flows that a market participant would use in determining the current fair value" of MBS.
The FSP drops "market participant" and allows management to make a "reasonable judgment" of future cash flows, which should reduce charges if the securities are performing. The comment period on the proposed FSP EITF Issue 99-20-a ends Dec. 30.
The Seattle Federal Home Loan Bank recently reported a $49.8 million "other than temporary impairment" charge against three private-label MBS. The FHLBank said it only expects to see a $4.9 million principal loss over the life of the three securities.