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Mortgage Series on Management Estimates

A series of papers that looks at management estimates from a variety of topics

Mortgage originators and servicers continue to manage through the downstream fallout of recent financial unrest. These institutions are faced with the impact that lower housing prices, increased unemployment, and tighter credit markets have on their balance sheets. As a result, it has become more difficult to create management estimates that reflect fair value and recoverability of servicing assets and potential exposure to contingent liabilities.

The process and policies for developing management estimates – and the assumptions used in those estimates – are critical components that should be refreshed in order to properly reflect the associated assets and liabilities for financial statement users. Our Mortgage Series on Management Estimates elaborates on the accounting, financial, operational, and regulatory impacts of mortgage servicing rights, servicing advances, compensatory fees, and putbacks in a series of six papers that will be released over the coming months. Opportunities may also exist to reframe the thought process around loss mitigation and optimizing economic recovery. This may be achieved by forecasting future impacts of fee assessments and non-recoverability of advances and thinking of these servicing and originating related assets and liabilities holistically, both economically and operationally.

We hope that this series provides insight into this broad ranging topic.

Featured content

Background and accounting primer
The first paper in the series includes background on management estimates, as well as the current accounting requirements for the related assets and liabilities. Learn more about the recording and valuation of a servicing asset or liability; the recording of a servicing advance receivable together with the appropriate estimate of non-recoverable advances; estimating and recording compensatory fee liabilities; and estimating repurchase reserves resulting from putbacks.
Operational considerations
The second paper focuses on the operational aspects of repurchase reserves, compensatory fees and servicing advances. Managing these estimates involves operational challenges to coordinate incoming demands from investors and regulators along with outgoing actions related to recovery and appeal. Coordinating this orchestra of activity and events is an ever-evolving process, and one which often has management, investors, and analysts asking, “why is this so complex?”

 

As used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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