6.1 General
ASC 860-50 — Glossary
Servicing Assets
A contract to service financial assets under which the
benefits of servicing are expected to more than adequately
compensate the servicer for performing the servicing. A
servicing contract is either:
-
Undertaken in conjunction with selling or securitizing the financial assets being serviced
-
Purchased or assumed separately.
Servicing
Liabilities
A contract to service financial assets under which the
estimated future revenues from contractually specified
servicing fees, late charges, and other ancillary revenues
(benefits of servicing) are not expected to adequately
compensate the servicer for performing the servicing.
ASC 860-50
05-1 This
Subtopic provides accounting guidance for servicing assets
and servicing liabilities.
05-2 Servicing is inherent in all
financial assets; it becomes a distinct asset or liability
for accounting purposes only in the circumstances described
in paragraph 860-50-25-1.
05-3 Servicing
of mortgage loans, credit card receivables, or other
financial assets commonly includes, but is not limited to,
the following activities:
-
Collecting principal, interest, and escrow payments from borrowers
-
Paying taxes and insurance from escrowed funds
-
Monitoring delinquencies
-
Executing foreclosure if necessary
-
Temporarily investing funds pending distribution
-
Remitting fees to guarantors, trustees, and others providing services
-
Accounting for and remitting principal and interest payments to the holders of beneficial interests or participating interests in the financial assets.
05-4 A servicer
of financial assets commonly receives the following benefits
of servicing:
-
Revenues from contractually specified servicing fees
-
A portion of the interest from the financial assets
-
Late charges
-
Other ancillary sources, including float.
A servicer is entitled to receive all of
those benefits of servicing only if it performs the
servicing and incurs the costs of servicing the financial
assets.
Overall Guidance
15-1 This
Subtopic has its own discrete scope, which is separate and
distinct from the pervasive scope for this Topic as outlined
in Section 860-10-15.
Entities
15-2 The
guidance in this Subtopic applies to all entities.
Transactions
15-3 The guidance in this Subtopic
applies to transactions in which servicing assets are
obtained and servicing liabilities are incurred, including
transactions in which loans are transferred with servicing
retained by the transferor. The guidance in this Subtopic
also applies to transactions in which servicing assets are
transferred with loans retained by the transferor.
ASC 860-50 addresses, for all entities, the accounting for servicing
assets and servicing liabilities and transfers of those assets or liabilities. The
servicing accounting guidance in ASC 860-50 applies to all financial assets being
serviced for others. Although examples of servicing arrangements generally refer to
the servicing of loans (i.e., mortgage, auto, credit card), the definition of
servicing of financial assets also applies, for instance, to factoring arrangements,
lease receivables, and cash flows related to securitized assets in securitization
vehicles.
Connecting the Dots
In practice, the sale of financial assets with the related
servicing rights is often referred to by the seller as a sale on a
“servicing-released” basis. The sale of financial assets without the related
servicing rights is often referred to by the seller as a sale on a
“servicing-retained” basis.