Publications:
Factors Influencing a Firm's Adoption of New Reporting Requirements:
SFAS 122 and Mortgage Servicers
by James H. Gilkeson and Mitchell Stengel
Abstract
This paper examines commercial banks' reporting of mortgage servicing assets (MSAs) during the
period surrounding the issuance of SFAS 122, "Accounting for Mortgage Servicing Rights." Although
the statement mandated reporting of originated mortgage servicing assets, which are created when
mortgages are originated and later sold, we find that most affected bank servicers did not begin to do
so. Banks may have avoided booking mortgage servicing assets because they are particularly volatile
and are expensive to periodically value and test for impairment (another SFAS 122 requirement) Not
reporting these assets is likely an acceptable practice on the grounds of their immateriality: they
make up only a small part of most banks' asset base and earnings. Using call report data which
identifies the size of the servicing portfolio whether mortgage servicing assets are booked or not,
we analyze the factors that influenced bank servicers' decisions to begin reporting mortgage servicing
assets on the balance sheet. We find that the size of the servicing portfolio and its growth rate
were positively related to the reporting decision, while the size of the bank and its demonstrated
ability to hold related securities (interest rate derivatives) were not. Results are mixed on the
impact of the materiality (size) of the portfolio relative to total assets and earnings, as well as
on a proxy for the banks' willingness to engage in other fee-based activities.
Disclaimer
As with all OCC Working Papers, the opinions expressed in this paper are those of the author alone, and
do not necessarily reflect the views of the Office of the Comptroller of the Currency or the Department of the Treasury.
Any whole or partial reproduction of material in this paper should include the following citation:
Gilkeson & Stengel, "Factors Influencing a Firm's Adoption of New Reporting Requirements:
SFAS 122 and Mortgage Servicers,
" Office of the Comptroller of the Currency, E&PA Working Paper 99-2, December 1999
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