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.