FASB Proposes Improvements to the Accounting for Residential Mortgage Servicing Rights (September 25, 2026)

FASB Proposes Improvements to the Accounting for Residential Mortgage Servicing Rights

Overview

On September 23, 2026, the FASB issued a proposed ASU 1 that would amend the guidance in ASC 860-502 on the measurement of residential mortgage servicing rights (MSRs) related to “recapture” (i.e., the servicer’s ability to solicit the underlying borrower for refinancing). The proposed amendments specify that recapture and the related residential MSR would be treated as a single unit of account. That is, the fair value measurement of residential MSRs would include all the servicer’s rights and obligations associated with the contract, including the ability to solicit the borrower for refinancing. The amendments are intended to align reported measurements with market-participant pricing.

Comments on the proposed ASU are due by November 9, 2026.

Background

In September 2025, the Agenda Committee of the Emerging Issues Task Force (EITF) added a project to the EITF’s agenda to address the application of the guidance in ASC 860-50 to residential MSRs. The project was added in response to comments from stakeholders that there was diversity in practice related to how entities reflect recapture in MSR measurements — particularly (1) whether recapture is excluded entirely from valuation models and (2) when recapture is included, whether it is explicitly or implicitly included in the valuation.

At its March 12, 2026, meeting, the EITF deliberated this issue and voted to recommend that an MSR and recapture be treated as a single unit of account and that the fair value measurement of an MSR therefore include the effects of recapture. The EITF also voted to recommend that recapture not be defined and that the proposed changes would only apply to residential MSRs. At its May 27, 2026, meeting, the FASB approved the addition of this project to its technical agenda, made tentative decisions related to the EITF’s recommendations, and instructed the staff to draft the proposed ASU.

Main Provisions of the Proposed ASU

A residential MSR is the contractual right to service an underlying residential mortgage loan. ASC 860-50 currently requires entities to initially measure servicing assets and liabilities at fair value and subsequently apply either the fair value measurement method or the amortization method. MSRs that are not subsequently measured at fair value are subject to impairment evaluations.

Under the proposed amendments, entities would be required to reflect in the fair value measurement of residential MSRs — both at initial recognition and thereafter, including for impairment testing — the value of all rights and obligations associated with the MSR, such as recapture rights. The proposed amendments do not supersede other guidance (e.g., ASC 860-50-25-6 through 25-7) that requires entities to recognize other rights and obligations associated with a mortgage servicing contract separately. The Board decided not to define recapture, concluding that a definition would introduce unnecessary complexity and would be inconsistent with ASC 820’s principles-based fair value framework, which requires entities to apply judgment when selecting assumptions and methods.

The other guidance in ASC 860-50 on recognition and measurement (including subsequent measurement) would remain unchanged. For example, the proposed amendments would not affect the existing amortization guidance in ASC 860-50-35-1(a). Thus, an entity would continue to exclude estimated future net servicing income from a refinanced loan when determining the amortization of an existing residential MSR (i.e., the proposal would affect the fair-value-based impairment assessment but not the amortization period).

Scope

The proposed guidance would apply to all entities and to residential MSRs recognized in accordance with ASC 860-50. It would not affect other servicing assets or liabilities recognized under ASC 860-50.

Connecting the Dots

The proposed amendments could indirectly affect interest rate lock commitments (IRLCs) that are measured at fair value under ASC 815 or ASC 825. This is because the measurement guidance in ASC 815-10-S99-1 includes references to ASC 860-50. However, the proposal does not explicitly address how IRLCs might be affected.

Disclosure

The proposed amendments would not introduce recurring disclosure requirements specifically related to recapture. The Board concluded that the disclosures required under ASC 860-50 and ASC 820 should provide sufficient information about material valuation inputs and assumptions.

Effective Date and Transition

Effective Date

The Board will determine the effective date after considering stakeholder feedback on the proposed ASU.

Early adoption would be permitted in an interim or annual reporting period for which financial statements have not yet been issued or made available for issuance. An entity that adopts the ASU’s guidance in an interim reporting period would be required to apply it as of the beginning of the annual reporting period that includes that interim period.

Transition

Entities would apply the proposed amendments by using a modified prospective approach to all residential MSRs outstanding as of the beginning of the annual reporting period of adoption. Any resulting cumulative-effect adjustment to opening retained earnings would be recognized as of that date.

At the beginning of the adoption period, entities would apply the proposed amendments to determine the fair value of residential MSRs. For assets subsequently measured under the fair value method, this amount would be used to remeasure the assets. For assets subsequently measured under the amortization method, this amount would be used to assess and measure impairment.

Appendix — Questions for Respondents

The proposed ASU’s questions for respondents are reproduced below for reference.

Scope

Question 1: Is the scope of the amendments in this proposed Update clear and operable? Do you anticipate any auditing challenges? Please explain why or why not.

Question 2: Should the proposed amendments apply to other servicing assets and liabilities within the scope of Subtopic 860-50 (for example, servicing assets and liabilities related to commercial loans, credit card receivables, automobile loans, and student loans)? Please explain why or why not.

Question 3: The proposed amendments do not define a residential mortgage loan. Is additional guidance needed to describe the types of residential MSRs that would be within the scope of the proposed guidance? For example, should a residential mortgage loan be defined as related to a single-family residential mortgage only? Please explain why or why not.

Measurement of a Residential MSR

Question 4: Would the proposed amendments to include the value attributable to recapture when measuring a residential MSR provide decision-useful information and improve comparability? Are the proposed amendments clear and operable? Do you anticipate any auditing challenges? Please explain why or why not.

Transition and Effective Date

Question 5: Are the proposed transition requirements operable? If not, why not, and what transition method would be more appropriate and why? Would the proposed transition disclosures be decision useful? Please explain why or why not.

Question 6: How much time would be needed to implement the proposed amendments? Should the effective date for entities other than public business entities be different from the effective date for public business entities? Please explain why or why not. If so, how much additional time would you recommend for entities other than public business entities?

Question 7: The proposed amendments would permit early adoption. Do you agree that early adoption should be permitted at any time before the effective date? Please explain why or why not.

Contacts

	Andrew Pidgeon Audit & Assurance Partner Deloitte & Touche LLP +1 415 783 6426 apidgeon@deloitte.com		Kyle Bab Audit & Assurance Managing Director Deloitte & Touche LLP +1 773 368 9331 kbab@deloitte.com
	James King Audit & Assurance Senior Consultant Deloitte & Touche LLP +1 929 656 2331 jamking@deloitte.com

Footnotes

FASB Proposed Accounting Standards Update (ASU), Transfers and Servicing ― Servicing Assets and Liabilities (Subtopic 860-50): Mortgage Servicing Rights — Recapture.

For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

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