Mortgage Loans and Basis in Assets


Loans originate on bank lines of credit. The banks line will wire the proceeds into settlement and there are dispersed by the settlement agent. The banks outstanding balance is a liability. The loan it holds is an asset. By the end of a given term, the volume of loans assembled over the quarter is transferred away from the banks and removed as a liability. In other words the servicing rights are what are left held by the bank upon the transfer of the assets capitalization or Derecognition of its basis in the assets.
Each loan is measured by the face amount of the note and borrowers promise to pay indicated by the terms and conditions held in the promissory note.
The capitalization is the wire balance authorized in the advance authorized by the bank under a federal wire transfer manifesting from bank to settlement agent. The key elements to this discovery of the banks ownership in the assets are the ABA wire amount, the HUD -1 settlement statement and subsequent recording.
The promissory note holds no evidential value to the controversy were litigation arises. In accounting, this is the general rule for booking assets under a mortgage backed securities scheme. It is for this particular reason that the accounting concept of Derecognition becomes so important in understanding the conflict with the courts understanding of the accounting dilemma.
The loan amount balance wired into the settlement agent upon the initiation and delivery of the wire is the basis in subject loan or the accountant’s recognition of the basis in assets. The basis in loan is both the value of the note and the liability for lines of credit outstanding. It is no different than spending $1,000 to purchase furnishing for a home. The cost of the furniture is $1,000 paid from the proceeds of a credit card.
The net effect of the purchase price is the amount shown on the credit card as an outstanding balance.

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