The Financial Accounting Standards Board issued a proposed Accounting Standards Update on Wednesday aimed at improving accounting guidance for residential mortgage servicing rights.
The proposed ASU is based on a recommendation of the Emerging Issues Task Force, a panel that assists the FASB in improving financial reporting through the identification, discussion, and resolution of financial accounting issues within the framework of the Accounting Standards Codification.
A residential mortgage servicing right represents the contractual right to service an underlying residential mortgage loan. Recapture refers to a mortgage servicer’s ability to solicit a borrower to refinance an existing mortgage loan and retain the servicing rights on the new loan.
“In this way, the servicer can preserve some or all of the economic benefit of servicing when the existing loan is prepaid through refinancing. Because market participants generally assign value to recapture, that value is often reflected in the prices paid for residential MSRs,” the proposed ASU states.
However, stakeholders have noted that current guidance in Subtopic 860-50, Transfers and Servicing—Servicing Assets and Liabilities, doesn’t specifically state whether the value attributable to recapture should be included when measuring a residential mortgage servicing right, which has resulted in diversity in practice and reduced comparability.
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To address stakeholders’ concerns, the amendments in the proposed ASU would require an entity to include the effects of recapture when measuring a residential mortgage servicing right by specifying that an entity must value all rights and obligations associated with a residential mortgage servicing contract, including recapture, in accordance with Topic 820, Fair Value Measurement, the FASB said.
The amendments would apply to all entities that recognize residential MSRs under Subtopic 860-50 but wouldn’t affect other servicing assets or liabilities recognized under Subtopic 860-50, the board added.
“Current GAAP does not explicitly address whether the value attributable to recapture should be included when measuring a residential MSR. The amendments in this proposed Update would specify that an entity must value all rights and obligations associated with a residential mortgage servicing contract in accordance with Topic 820 when measuring a residential MSR, including the effects of recapture,” the proposed ASU says. “The amendments in this proposed Update would (1) increase transparency by aligning the measurement of residential MSRs with how they are priced in the marketplace and (2) improve consistency and comparability across entities by reducing diversity in how servicers consider recapture in their residential MSR valuations.”
Stakeholders are asked to review and provide comments on the proposed ASU by Nov. 9, 2026.
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