Volume 6, No. 2

 

Loan Sales & Securitizations: The Rules Change Now:  Until now, the rules for recognizing sales of loans have been inconsistent. The rise in popularity of loan securitizations and partial securitizations has made the inconsistencies in generally accepted accounting principles even more glaring over the last ten years or so. The FASB cleaned up the accounting for mortgage bankers engaging in such transactions when SFAS No. 122 became effective last year. The accounting for similar transactions in different industries did not fall under the jurisdiction of SFAS No. 122, however, and still produced results that could be quite different for loan sales and securitizations outside the mortgage banking industry. SFAS No. 125 establishes criteria for loan sales and securitizations across all industries. It became effective at the beginning of 1997, and will result in "new-look" financial statements in some instances.

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