Possible accounting rule changes will make it harder and costlier for banks to package and
sell off loans. This in return would make borrowing more expensive for the consumer
Under current rules, banks can create securitization vehicles that hold the loans off their
balance sheets. Under proposed rules the securitization vehicles would have to be included on
the balance sheet which could create a capitalization problem. This proposal possibly caused
a sharp decline in Fannie Mae and Freddie Mac shares on July 7, 2008. They each hold a substantial
amount of off-balance sheet mortgage-backed securities which if forced to place on their balance
sheet would greatly increase their minimum capital requirements.
Spurred by the subprime mortgage crisis, FASB is under direction from the SEC and the Presidents'
working group on the credit crisis to fast tract the FAS 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" project as well as amending FIN46R "Consolidation
of Variable Interest Entities". Under the FAS 140 project FASB has decided to eliminate the concept of
the qualified special-purpose entity (QSPE) and will also remove the related scope exemption from FIN46R.
Final FASB deliberations should have concluded in June with a public comment period starting in July.
The changes could be finalized in the 3rd quarter with an expected effective date of June 2009.
Sources:
"FASB Lobs a Balance-Sheet Bombshell" by Joseph Rosta, U.S. Banker June 1, 2008
"FASB Signals Stricter Rules for Banks' Loan Vehicles" by David Reilly, The Wall Street Journal May 2, 2008
"What's Wrong with Subprime Accounting?" by Marie Leone, CFO.com April 28, 2008
"Fannie, Freddie Sink on Capital Concerns" by David Bogoslaw, BusinessWeek July 7, 2008
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