Chapter 6 — Servicing Assets and Liabilities

6.6 Presentation and Disclosure

6.6.1 Presentation

6.6.1.1 Balance Sheet

ASC 860-50

45-1 An entity shall report recognized servicing assets and servicing liabilities that are subsequently measured using the fair value measurement method in a manner that separates those carrying amounts on the face of the statement of financial position from the carrying amounts for separately recognized servicing assets and servicing liabilities that are subsequently measured using the amortization method.

45-2 To accomplish that separate reporting, an entity may do either of the following:

Display separate line items for the amounts that are subsequently measured using the fair value measurement method and amounts that are subsequently measured using the amortization method
Present the aggregate of those amounts that are subsequently measured at fair value and those amounts that are subsequently measured using the amortization method (see paragraphs 860-50-35-9 through 35-11) and disclose parenthetically the amount that is subsequently measured at fair value that is included in the aggregate amount.

Entities must present servicing assets and servicing liabilities measured under the amortization method separately from those measured under the fair value method. ASC 860-50-45-2 discusses two methods that may be used for such presentation.

6.6.1.2 Income Statement

ASC 860-50 does not provide specific guidance on classifying servicing revenue. Financial services entities should present servicing revenue as part of noninterest income. Such revenue may be shown as a separate line item in the income statement or may be combined with other fees received.

6.6.2 Disclosure

6.6.2.1 All Servicing Assets and Servicing Liabilities

ASC 860-50

All Servicing Assets and Servicing Liabilities

50-2 For all servicing assets and servicing liabilities, all of the following shall be disclosed:

Management’s basis for determining its classes of servicing assets and servicing liabilities.
A description of the risks inherent in servicing assets and servicing liabilities and, if applicable, the instruments used to mitigate the income statement effect of changes in fair value of the servicing assets and servicing liabilities.
The amount of contractually specified servicing fees, late fees, and ancillary fees recognized for each period for which results of operations are presented, including a description of where each amount is reported in the statement of income.
Quantitative and qualitative information about the assumptions used to estimate fair value (for example, discount rates, anticipated credit losses, and prepayment speeds).

ASC 860-50-50-2 prescribes the disclosure requirements that apply to all servicing assets and servicing liabilities. These disclosures are required regardless of the subsequent-measurement method (i.e., amortization method or fair value method). Thus, entities that apply the fair value method must still disclose the amount of contractually specified servicing fees, late fees, and ancillary fees recognized for each period for which results of operations are presented, including a description of where each amount is reported in the statement of income.

6.6.2.2 Servicing Assets and Servicing Liabilities Subsequently Measured at Fair Value

ASC 860-50

Servicing Assets and Servicing Liabilities Subsequently Measured at Fair Value

50-3 For servicing assets and servicing liabilities subsequently measured at fair value, the following shall be disclosed:

For each class of servicing assets and servicing liabilities, the activity in the balance of servicing assets and the activity in the balance of servicing liabilities (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented), including, but not limited to, the following:
1. The beginning and ending balances
2. Additions through any of the following:
  1. Purchases of servicing assets
  2. Assumptions of servicing obligations
  3. Recognition of servicing obligations that result from transfers of financial assets.
3. Disposals
4. Changes in fair value during the period resulting from either of the following:
  1. Changes in valuation inputs or assumptions used in the valuation model
  2. Other changes in fair value and a description of those changes.
5. Other changes that affect the balance and a description of those changes.

ASC 860-50-50-3 requires a rollforward of the beginning and ending balances of servicing rights that are subsequently measured at fair value. The rollforward is required by class of servicing assets and servicing liabilities. In addition, servicing assets and servicing liabilities accounted for by using the fair value method are also subject to ASC 820’s requirements related to recurring fair value disclosures. For more information, see Chapter 11 of Deloitte’s Roadmap Fair Value Measurements and Disclosures (Including the Fair Value Option).

SEC Considerations

At the December 2011 AICPA Conference on Current SEC and PCAOB Developments, the staff of the SEC’s Division of Corporation Finance discussed common themes in comment letters on the recognition or disclosure of the fair value of servicing rights. In a slide, the following were discussed as common comments on registrant filings:

“Wide range of assumptions disclosed — may request more granular disclosure by loan type and interest rate.”
“Lack of discussion about drivers of change in value — comments request separate discussion and quantification of factors driving the change in value as factors are often offsetting (lower prepayment speeds versus higher servicing costs, etc.).”

6.6.2.3 Servicing Assets and Servicing Liabilities Subsequently Amortized

ASC 860-50

Servicing Assets and Servicing Liabilities Subsequently Amortized

50-4 For servicing assets and servicing liabilities measured subsequently under the amortization method in paragraph 860-50-35-1(a), all of the following shall be disclosed:

For each class of servicing assets and servicing liabilities, the activity in the balance of servicing assets and the activity in the balance of servicing liabilities (including a description of where changes in the carrying amount are reported in the statement of income for each period for which results of operations are presented), including, but not limited to, the following:
1. The beginning and ending balances
2. Additions through any of the following:
  1. Purchases of servicing assets
  2. Assumptions of servicing obligations
  3. Recognition of servicing obligations that result from transfers of financial assets.
3. Disposals
4. Amortization
5. Application of valuation allowance to adjust carrying value of servicing assets
6. Other-than-temporary impairments
7. Other changes that affect the balance and a description of those changes.
For each class of servicing assets and servicing liabilities, the fair value of recognized servicing assets and servicing liabilities at the beginning and end of the period.
Subparagraph superseded by Accounting Standards Update No. 2009-16.
The risk characteristics of the underlying financial assets used to stratify recognized servicing assets for purposes of measuring impairment in accordance with paragraph 860-50-35-9. If the predominant risk characteristics and resulting stratums are changed, that fact and the reasons for those changes shall be included in the disclosures about the risk characteristics of the underlying financial assets used to stratify the recognized servicing assets in accordance with this paragraph.
For each period for which results of operations are presented, the activity by class in any valuation allowance for impairment of recognized servicing assets, including all of the following:
1. Beginning and ending balances
2. Aggregate additions charged and recoveries credited to operations
3. Aggregate write-downs charged against the allowance.

ASC 860-50-50-4 requires a rollforward of the beginning and ending balances of servicing rights that are subsequently measured at amortized cost. The rollforward is required by class of servicing assets and servicing liabilities. In addition, ASC 860-50-50-4 requires disclosure of the fair value of servicing assets and servicing liabilities that are measured at amortized cost, the risk characteristics used for stratification of those servicing assets and servicing liabilities, and a rollforward of the allowance for impairments. Entities that subsequently measure servicing assets and servicing liabilities by using the amortization method would also be subject to the ASC 820 disclosure requirements applicable to nonrecurring fair value measurements (e.g., impairments of servicing assets or increased obligations for servicing liabilities). For more information see Chapter 11 of Deloitte’s Roadmap Fair Value Measurements and Disclosures (Including the Fair Value Option).

6.6.2.4 Servicing Assets and Servicing Liabilities for Which Subsequent Measurement at Fair Value Is Elected as of the Beginning of the Fiscal Year

ASC 860-50

Servicing Assets and Servicing Liabilities for Which Subsequent Measurement at Fair Value Is Elected as of the Beginning of the Fiscal Year

50-5 If an entity elects under paragraph 860-50-35-3(d) to subsequently measure a class of servicing assets and servicing liabilities at fair value at the beginning of the fiscal year, the amount of the cumulative-effect adjustment to retained earnings shall be separately disclosed.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.