Part two: Mortgage series on management estimates
Management estimates are inherently subjective and yet are oftentimes significant in size and critical in nature to financial reporting. The pertinence of process and policies for developing management estimates—and the assumptions used in those estimates—are critical 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. The first paper in the series provided a background on these management estimates, as well as an overview on accounting requirements for the related assets and liabilities.
The second paper in the series, Operational Considerations, 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?”
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