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Mortgage series on management estimates

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Management estimates are inherently subjective and yet are oftentimes significant in size and critical in nature to financial reporting. The pertinence of process and policies for developing management estimates—and the assumptions used in those estimates—are critical to properly reflect the associated assets and liabilities for financial statement users.

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Our Mortgage Series on Management Estimates elaborates on the accounting, financial, operational, and regulatory impacts of mortgage servicing rights, servicing advances, compensatory fees, and putbacks.

Part 1: Background and accounting primer

This paper includes background on management estimates, as well as the current accounting requirements for the related assets and liabilities.

It discusses the recording and valuation of a servicing asset or liability; the recording of a servicing advance receivable together with the appropriate estimate of non-recoverable advances; estimating and recording compensatory fee liabilities; and estimating repurchase reserves resulting from putbacks. Read it now.

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Part 2: Operational considerations

This paper focuses on the operational aspects of repurchase reserves, compensatory fees and servicing advances.

Managing these estimates involves operational challenges to coordinate incoming demands from investors and regulators along with outgoing actions related to recovery and appeal. Coordinating this orchestra of activity and events is an ever-evolving process, and one which often has management, investors and analysts asking: “why is this so complex?” Read it now.

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