Mortgage-backed securities and fair-value accounting

Many entities are in the process of implementing FASB's recently issued guidance on fair value, SFAS 157, Fair Value Measurements, and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No 115. Proper implementation can req...

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Bibliographic Details
Published in:The CPA journal (1975) 2008-05, Vol.78 (5), p.30
Main Authors: Krumwiede, Tim, Scadding, Ryan M, Stevens, Craig D
Format: Article
Language:English
Subjects:
Accounting
Accounting standards
Collateralized mortgage obligations
CPAs
Credit risk
Fair value
FASB statements
Interest rates
Loans
Methods
Mortgage backed securities
Mortgage companies
Net income
Prepayments
Retained earnings
Subprime lending
Valuation
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Summary:Many entities are in the process of implementing FASB's recently issued guidance on fair value, SFAS 157, Fair Value Measurements, and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No 115. Proper implementation can require CPAs to exercise professional judgment. This article illustrates the application of this professional judgment to MBSs as well as a discussion on other- than-temporary impairments of mortgage-backed securities (MBSs) under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. In addition to providing a primer on the accounting treatment of MBSs, the discussion of SFAS 157 and SFAS 159 is expanded to help CPAs apply these standards in other situations. Fair-value measurements based on the use of unobservable inputs requires the exercise of significant professional judgment. Consistent with the subjectivity of these measurements, extensive disclosures are required by SFAS 157.
ISSN:0732-8435