At the recent Financial Accounting Standards Board (FASB) meeting on June 22, mortgage market participants - including bank regulatory agencies, investors, accountants, lawyers, the Securities and Exchange Commission (SEC) and the office of its chief accountant - gathered to discuss the issue of loan modifications and, more specifically, their application under FAS140.
The meeting was set up as an educational session, according to an attendee, to address how the loan modifications relate with the current accounting guidance. And it seemed the two coincided appropriately, as none of the regulators or FASB staff identified any fundamental issue or problem with the various loan modifications discussed under the prevailing accounting guidance.
The four major accounting firms, Deloitte & Touche, Ernst & Young, PricewaterhouseCoopers and KPMG International, either endorsed the guidance - such as the interpretive guidance issued by Mortgage Bankers Association - or registered no fundamental problem or objection to it.
A separate but related issue tackled by investors was how modified loans are treated for purposes of delinquency and realized loss triggers, since the performance of subprime collateral pools will likely lead to a higher volume of loan modifications. While no hard conclusions have been made, organizations like the American Securitization Forum are doing follow-up work to develop recommendations for investor reporting treatment and for the performance trigger treatment of modified loans.
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