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MBA Advocacy Update

O’Connor, Steve; Killmer, Bill
The House and Senate are in the middle of a two-week recess before a busy May that will see congressional action on raising the federal debt ceiling and continued talks on deficit reduction.

Moreover, MBA is preparing its formal comments on the nearly 400-page proposed risk retention regulations.

MBA Replies to Government on Overtime Compensation
On April 19, MBA replied to the government’s motion to dismiss a suit MBA filed in early January in the U.S. District Court for the District of Columbia as part of MBA v.  Hilda L. Solis, Secretary of Labor et al.

The suit urges the court to require the Department of Labor to withdraw its March 24, 2010 administrative interpretation, which would make the administrative exemption under the Fair Labor Standards Act largely unavailable for mortgage loan officers. MBA’s reply points out that the government motion does not refute MBA’s contention that DOL’s interpretation violated the Administrative Procedure Act and that the interpretation is inconsistent with DOL regulations.

The government can be expected to file a response to this pleading before the matter is considered further by the court.    

For more information, please contact Ken Markison (202) 557-2930 kmarkison@mortgagebankers.org.

MBA Submits Comments on FASB Hedge Accounting Paper
On April 20, MBA submitted a comment letter (
http://www.mortgagebankers.org/files/Advocacy/2011/MBACommentLettertoFASBonHedgeAccounting.pdf) to the Financial Accounting Standards Board on its Selected Issues about Hedge Accounting. On May 26, 2010 FASB issued its exposure draft, Accounting for Financial Instruments and Revisions to Accounting for Derivative Instruments and Hedging Activities. This contained FASB’s proposed model for hedge accounting. On December 9, 2010, the International Accounting Standards Board issued its exposure draft, Hedge Accounting.

The subject Discussion Paper was issued by FASB on February 9 as part of working with IASB to come up with a converged international accounting standard. FASB’s purpose in issuing the Discussion Paper is to solicit comments on IASB’s proposed hedge accounting guidance. In addition to the questions asked by IASB in its exposure document, the Discussion paper contains FASB’s questions about the IASB’s Proposed Standard. 

In its response to FASB, MBA included most of the comments it sent to IASB in March. In responding to FASB’s specific questions, MBA generally supports IASB’s approach of linking a reporting entity’s risk management policies with hedge accounting. MBA also supports IASB’s inclusion of cash instruments as eligible hedged items. However, in its response MBA continues to support FASB’s hedge effectiveness model, which calls for qualitative testing using an effectiveness threshold of “reasonably effective.”

For more information, please contact Jim Gross (202) 557-2860 jgross@mortgagebankers.org

MBA Files Comments with FASB, IASB on Offsetting Assets and Liabilities
On April 20, MBA sent FASB and IASB a letter (
http://www.mortgagebankers.org/files/Advocacy/2011/MBACommentLettertoIASBandFASBonOffsettingAssetsandLiabilities.pdf) on their joint exposure draft for a proposed new accounting standard on offsetting assets and liabilities in the balance sheet. 

Offsetting in this exposure draft relates to presenting, as a single net amount, an asset and liability in the statement of financial position. Today, the difference in offsetting requirements in U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) accounts for the single largest quantitative difference in the amounts presented in statements of financial conditions reported in GAAP as compared to IFRS. This reduces the comparability of financial statements between the United States and IFRS reporting countries. 

Under the Proposed Standard, a reporting entity would be required to offset a recognized eligible asset and a recognized eligible liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously.

The most frequent possible use by mortgage bankers of the Proposed Standard would be the possible offset of derivative assets and liabilities. For example, if a mortgage banker finds it has too many forward sale contracts for Fannie Mae, Freddie Mac or Ginnie Mae MBS for hedging loans in the pipeline or loans held for sale, it will pair off some of those forward sales contracts with like forward purchase contracts. 

In its comment letter MBA said the criteria for offsetting in the Proposed Standard was too restrictive and may result in very few assets and liabilities actually being offset in the balance sheet. MBA stated its view that existing U.S. standards are less restrictive and are based on how management manages the cash flows from such assets and liabilities.

For more information, please contact Jim Gross (202) 557-2860 jgross@mortgagebankers.org

MBA Meets with FASB Representatives on Lease Accounting
On April 19, MBA staff attended a meeting hosted by the U.S. Chamber of Commerce with Russ Golden, board member of the Financial Accounting Standards Board, and with Susan Cosper, FASB’s technical director. The purpose of the meeting was for FASB to provide an update on the lease accounting project.

MBA previously commented on FASB’s and the International Accounting Standards Board’s joint exposure draft. FASB and IASB announced several improvements since the original exposure draft. First, they have eliminated the proposed treatment for renewals. Renewals would be included in future rental calculations only if they meet a high threshold of probability--in a similar fashion to today’s accounting under the U.S. generally accepted accounting principles (GAAP).

Further, the measurement of a lessees’ liability and the lessor’s receivable should not include variable lease payments. Instead, there would be additional disclosures of historic variable lease payments. Another improvement is that both lessors and lessees may account for short-term leases without recognizing lease assets and lease liabilities.

FASB and IASB have also tentatively agreed to include two classifications of leases: finance leases and other-than-finance leases. The criteria for each are similar to existing GAAP. For other-than-finance leases, the lessee may amortize straight-line as opposed to accelerated amortization that was proposed in the original exposure draft. At the next FASB Board meeting, it will decide on approaches for lessor accounting.

Golden indicated the many IASB board members are still undecided about the proposed changes. Several board members will rotate off prior to the final vote. This means there is greater uncertainty whether FASB and IASB would agree on a final converged standard by the end of the year. FASB intends to put out a second exposure document with a likely 60 day comment period. FASB is still targeting a late 2011 or early 2012 date for issuing the standard. The likely implementation date for the standard is “no sooner than 2015.”

For more information, please contact Jim Gross (202) 557-2860 jgross@mortgagebankers.org

Wisconsin MBA Capitol Day Set for May 3; MAA Members Encouraged to Participate
Mortgage Action Alliance
members in Wisconsin are encouraged to participate in the Wisconsin MBA’s Capitol Day on May 3. This is a free event, and critical to the industry’s advocacy efforts in Wisconsin. For more information about the event, click
http://www.wimba.org/cde.cfm?event=351063

Other state MBAs wishing to promote their annual legislative events through the Mortgage Action Alliance should contact Chelsea Crucitti (ccrucitti@mortgagebankers.org).

The Mortgage Action Alliance is the industry’s free grassroots advocacy program. Individuals employed in the real estate finance industry are eligible to enroll regardless of whether they are employed by a member firm of MBA.

For more information about MAA, please contact William Kooper (202) 557-2737 or wkooper@mortgagebankers.org or click http://www.mortgagebankers.org/Advocacy/MortgageActionAlliance.