FDIC ADOPTS INTERIM CAPITAL RULE FOR ORIGINATED MORTGAGE SERVICING RIGHTS
FOR IMMEDIATE RELEASE
The FDIC Board of Directors has announced the adoption of an
interim rule placing regulatory capital limits on "originated mortgage
servicing rights" (OMSRs) at FDIC-supervised banks.
In general, mortgage servicing rights are the contractual
obligations undertaken by an institution to provide servicing for
mortgage loans owned by others, typically for a fee. OMSRs generally
represent the servicing rights acquired when an institution originates
mortgage loans and subsequently sells the loans but retains the
servicing rights. This differs from "purchased mortgage servicing
rights" (PMSRs), which are mortgage servicing rights that have been
purchased from other parties.
Under the interim rule, which also is being adopted by the three
other federal regulators of banks and thrifts, the capital adequacy
standards the FDIC applies to OMSRs would be the same as those for
PMSRs. This means that some institutions that are actively involved in
mortgage servicing may need to increase their capital in the future.
Specifically, when determining an institution's risk-based and
leverage capital ratios, the total amount of its mortgage servicing
rights (including PMSRs and OMSRs) and "purchased credit card
relationships" that may be included in regulatory capital is limited to
50 percent of Tier 1 capital. In addition, when calculating Tier 1
capital, all mortgage servicing rights are valued -- as PMSRs previously
were -- at the lesser of 90 percent of fair value or 100 percent of book
value. The agencies previously limited the amount of PMSRs that an
institution could include in regulatory capital because of the
subjectivity and uncertainty surrounding the valuation of these assets
and the risks resulting from a high concentration of them. The four
agencies now are adopting the interim rule to treat OMSRs the same as
PMSRs because of their belief that the risk characteristics are similar.
The interim rule will become effective when it is published in the
Federal Register. However, written comments will be accepted for 60
days after the interim rule is published. Based on the comments
received, the agencies will consider whether to alter the policy as part
of a final rule.
The interim capital rule was developed in response to the Financial
Accounting Standards Board's Statement No. 122, "Accounting for Mortgage
Servicing Rights" (FAS 122), issued in May of 1995. Starting in 1996,
FAS 122 will eliminate the accounting distinction between OMSRs and
PMSRs by requiring OMSRs to be capitalized as balance sheet assets, a
treatment previously required only for PMSRs. The interagency Federal
Financial Institutions Examination Council announced on June 21, 1995,
that all insured banks and savings associations must adopt FAS 122 in
1996, with earlier implementation permitted. The actions of the FDIC
and the other regulators provides early guidance on the regulatory
capital treatment of OMSRs for those institutions considering whether to
implement FAS 122 before its 1996 effective date.