GAAP ACCOUNTING FOR A LENDER REGISTRANT


 XYZ Mortgage Lending and Securities sells a group of individual loans in their entirety with a fair value of $5,500 and a carry amount of $5,000 in a transfer that qualifies for sale accounting.

 XYZ Company

Fair Market Value X$5,500.00

MortgagesXXXXX X$5,000.00

Gain on Sale XXXXX0$500.00

XYZ will service the loans and has a call option to purchase loans at fair value from the buyer that are similar to the ones sold. XYZ Company assumes a limited recourse obligation to repurchase delinquent loans. XYZ receives a beneficial interest in the transferred assets. As is illustrated to the right under the new rule, the gain on the sale equals net proceeds of $5,500 less the carrying amount of $5,000, or $500.

Therefore 90% of the carrying amount of $5,000 was assigned to the proceeds received for the interest sold, and 10% of the carrying amount of $5,000 was assigned to the beneficial interests that continued to be held by the seller. In calculating the gain, the carrying amount of the loans sold of $4,500 was subtracted from the allocated fair value of the interest sold of $4,950 (4,950 – 4,500 = 450 gain):

Gain on Sale __________$500.00

Participating Intererest _$_50.00

Net Gain on Sale_______$450.00

Allocated FMV $4,950.00 Note: Gain on Sale less 10% of interest equals $4,950 Fair Market Value – Participating Intererest

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One thought on “GAAP ACCOUNTING FOR A LENDER REGISTRANT

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