Key facts
- FASB proposed requiring mortgage servicers to include recapture value in residential MSR measurements.
- The proposal aims to reduce diversity in practice and improve comparability of MSR valuations.
- Currently, accounting practices for including recapture in MSR valuations vary among servicers.
- Some servicers, like loanDepot and Rithm Capital, already include recapture in their MSR valuation models.
- Other servicers, such as PennyMac Financial Services and UWM Holdings, do not include recapture.
- The proposal currently applies only to residential MSRs, excluding commercial MSRs and other servicing assets.
The Financial Accounting Standards Board (FASB) has proposed new accounting guidance that would require companies to include recapture values when measuring residential mortgage servicing rights (MSRs). The proposal, issued Wednesday, aims to standardize practices and improve the comparability of MSR valuations across the industry.
Currently, there is diversity in practice regarding whether the value attributable to recapture should be included in MSR measurements. Stakeholders have informed FASB that existing guidance lacks clarity on this matter, leading to inconsistent application and reduced comparability among servicers. BTIG analysts observed that accounting practices on recapture are divided within their coverage universe, with some firms like loanDepot, Rithm Capital, and Rocket Companies already incorporating recapture into their MSR valuation models, while others such as Onity Mortgage, PennyMac Financial Services, and UWM Holdings do not.
BTIG analysts believe this change will align accounting valuations of MSRs more closely with market valuations, as recapture can represent a significant portion of a servicing pool's value. Keefe, Bruyette & Woods (KBW) described the proposal as an initiative to enhance transparency and consistency in MSR valuation approaches. However, KBW analysts do not anticipate a material impact on financial statements, as they believe the market already accounts for recapture's impact on MSR valuations.
While no servicer currently breaks out the dollar value of recapture within the MSR, some, like Rithm, disclose recapture assumptions, and others, like Rocket, indicate that recapture cash flows are embedded in their models with limited additional detail. FASB has intentionally not defined "recapture," intending to preserve judgment and flexibility as servicing markets evolve, particularly concerning cross-selling and other relationship-based benefits not directly tied to the MSR itself.
The proposal currently applies exclusively to residential MSRs. Commercial MSRs and servicing for credit cards, auto loans, and student loans are excluded because recapture is not considered a significant valuation factor in those markets. However, FASB is soliciting feedback on whether the scope should be expanded to all servicing assets. Stakeholders have until November 9 to submit their comments.