Hedge accounting MSR value increases

Additionally, as the value of the MSR asset increases, existing impairment reserves may be recovered. Derivatives are closed resulting in the payment of 400 in cash. The offsetting entry increases the MSR book basis as follows Derivatives are marked to market each period through earnings. The MSR also is marked to market each period for the risk hedged. Closing a derivative position reduces the derivative asset liability, but does not affect the MSR. The accounting follows

Servicing Process Flow Example

Proceeds are invested to earn Float interest income between the collection of the payment from the customer and remittance. Typically between 5 and 10 days. Pays Servicer principal amp interest 6 Retains 35 bps of 6 coupon to cover costs to service Holds Escrow deposits at no cost until remitted Agent retains a guarantee fee of 15 bps in exchange for default risk Pass thru vehicle retains portion of cash flows to absorb default risk Investors receive principal and 5.50 in coupon payments for...

Hedge accounting MSR value declines

Under Dutch GAAP out performance of hedges is not recognized in earnings, but rather as a reduction of the MSR. Conversely, under US GAAP, income is recognized on the hedge and an offsetting Impairment is recognized on the asset. Derivatives are closed resulting in the receipt of 600 in cash. The offsetting entry reduces the MSR book basis as follows Derivatives are marked to market each period through earnings. The MSR also is marked to market each period for the risk hedged. Closing a...

General Accounting Principles Us Gaap

Loan Servicing Income the servicer collects a spread on outstanding mortgage loans every month - Accounting service fee income is accrued as earned. Similarly, costs to service the loans are expensed as incurred MSR the servicer estimates the net present value of servicing income of the underlying mortgage, net of expected costs to service - Amortization the MSR is amortized in proportion to the expected net cash flows of the asset. Prepayments significantly impact the expected life