Under ASC 860-50, a company shall recognize a servicing asset or liability when it enters into a servicing contract and the contract creates an obligation to service a financial asset. The MSR asset can only be recognized once control over the related mortgage loan held for sale is surrendered by the company.

According to 12 CFR 325.2 [Title 12 — Banks and Banking; Chapter III — Federal Deposit Insurance Corporation; Subchapter B — Regulations and Statements of General Policy; Part 325 — Capital Maintenance; Subpart A — Minimum Capital Requirements], mortgage servicing assets means “those assets (net of any related …

Servicing assets include amounts received by the issuing entity as proceeds of rights or other assets, whether as remittances by obligors or as other recoveries.

MSRs are an intangible asset recorded on the balance sheet of mortgage companies that service mortgage loans for others. The servicer remits the funds collected, less a fee for the services rendered, to the owner of the loans.

The value of servicing is the net present value of the servicing revenue components less expenses, adjusted for expected prepayment speeds. The servicing value is expressed as either a multiple of the service fee or as a percentage of the UPB.

By definition a Mortgage Servicing Right, herein referred to as MSR(s), is a contractual agreement where the right, or rights, to service an existing mortgage are sold by the original lender to another party who, for a fee, performs the various functions required to service mortgages.

The only way to change your mortgage servicer is to refinance your mortgage with a different lender. However, there is no guarantee the new lender will not sell the loan to a servicer with which you’ve had bad experiences in the past.

Mortgage servicing rights are sold by the originator of a mortgage to another financial institution, which then takes over the administration of the mortgage, which includes such tasks as collecting payments and forwarding them to the originator. The original lender pays the servicer a fee for performing this work.

Ensure you can afford repayments if interest rates rise from their current historic lows. To do this, work out what your monthly repayments would be if mortgage rates rose to 8 per cent. 2. Consider taking out income protection insurance which would pay out if you fell ill or had a nasty accident.

1. Amortization method: Amortize the servicing asset in proportion to and over the period of estimated net servicing income (level yield method) and assess servicing assets for impairment based on fair value at each reporting date.

A servicing fee, usually 0.25% to 0.5% of the mortgage balance, is a portion of a mortgage payment that’s paid monthly to a mortgage servicer for collecting payments and passing them to the lender.

An acquisition or assumption of a servicing obligation that does not relate to financial assets of the servicer or its consolidated affiliates. After a loan is sold, assuming the servicing has been retained, the MSR should be capitalized at fair value and subsequently accounted for using either the Amortization or Fair Value method.

ASC 860-20 notes that it “provides guidance on the accounting for a transfer of financial assets that satisfies the conditions for sale accounting in paragraph 860-10-40-5 and the accounting if a transferor regains control of assets previously sold.”

This Subtopic provides accounting guidance for servicing assets and servicing liabilities. Accounting for and remitting principal and interest payments to the holders of beneficial interests or participating interests in the financial assets. Other ancillary sources, including float.

Assuming permissible market conditions and a willing pool of buyers and sellers, MSRs can be a liquid asset, but obtaining the exact execution level negotiated between two private entities can be problematic.