A new proposal would require mortgage servicers to include recapture value when measuring residential mortgage servicing rights (MSRs), aiming to reduce diversity in practice.
The Financial Accounting Standards Board (FASB) issued the proposal on Wednesday, which would amend General Accepted Accounting Principles (GAAP) to explicitly require entities to incorporate all rights and obligations associated with a residential mortgage servicing contract, including recapture, in the fair value of a residential MSR.
Stakeholders have told FASB that current guidance does not clearly state whether the value attributable to recapture should be included in the MSR measurement, which has led to inconsistent practices and reduced comparability across servicers.
BTIG analysts noted that accounting practice on recapture is currently split across its coverage universe. Lenders and servicers — including loanDepot, Rithm Capital and Rocket Companies — already include recapture in their MSR valuation models, according to the firm. Others, including Onity Mortgage, PennyMac Financial Services and UWM Holdings, do not.
“We see this change aligning the accounting valuation of MSR more closely with market valuation as recapture can be a large part of the value of the servicing pool,” BTIG analysts said.
Keefe, Bruyette & Woods (KBW) framed the proposal as a transparency and consistency initiative that could improve comparability of MSR valuation approaches across issuers.
“However, we don’t expect it to have any impact on financial statements since we believe the market is already incorporating the impact of recapture in MSR valuations,” the analysts wrote.
KBW highlighted that while no servicer currently breaks out the dollar value of recapture within the MSR, some, such as Rithm, disclose recapture assumptions. Others, such as Rocket, state that recapture cash flows are embedded in their models but provide limited additional detail.
FASB chose not to define “recapture.” According to KBW, the board wants to preserve judgment and avoid rigid boundaries as servicing markets evolve, especially around cross-selling and other relationship-based benefits that may not be directly tied to the MSR itself.
The proposal currently applies only to residential MSRs. Commercial MSRs and servicing for credit cards, auto loans and student loans are excluded because recapture is not a meaningful valuation factor in those markets today.
But FASB is asking stakeholders whether the scope should be broadened to all servicing assets. Stakeholders have until Nov. 9 to provide feedback.
