6.7 Other Considerations

For risk management purposes, entities often enter into transactions involving derivative instruments and cash instruments (e.g., securities) to economically hedge the change in fair value of MSRs. The related hedging strategies are often complex because of the convexity risk and other duration-related risks associated with MSRs. As a result, entities may economically hedge MSRs without applying hedge accounting. An economic offset will naturally occur, to some extent, if the entity elects to use the fair value method to account for MSRs. While ASC 815-20 does not preclude applying fair value hedging to MSRs that are accounted for by using the amortization method, it is often difficult to define a hedging strategy that is highly effective for accounting purposes. For more information on fair value hedging, see ASC 815-20-55-65.

ASC 948-340-30-1 addresses how costs are capitalized when GNMA securities are issued and indicates that the aggregate amount capitalized, including amounts capitalized under other FASB ASC subtopics, may not exceed the present value of net future servicing income.