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ASU No. 2014-14 to Help Creditors with Government-Guaranteed Mortgage Loans

Issued by the Financial Accounting Standards Board, Accounting Standards Update (ASU) No. 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, impacts creditors with government-guaranteed mortgage loans, counting those guaranteed by the Federal Housing Administration and the U.S. Department of Veterans Affairs.

Per the ASU’s amendments, a mortgage loan is required to be derecognized and a separate other receivable be recognized upon foreclosure if the conditions below are met:

  • The loan includes a government guarantee that is inseparable from the loan prior to foreclosure.
  • The creditor plans to transfer the real estate property to the guarantor and make a claim on the guarantee, and the creditor is able to recover under said claim.
  • Any amount of the claim established on the basis of the fair value of the real estate is fixed.

At foreclosure, the other receivable should be assessed based on the loan balance’s (principal and interest) amount the guarantor is likely to recover.

The amendments in ASU No. 2014-14 are in effect for public business entities for annual periods, and interim periods within such periods, starting after December 15th. As for other entities, the amendments go into effect for annual periods that end after December 15, 2015, and interim periods starting after December 15, 2015. In addition, ASU No. 2014-14’s amendments must be adopted by a prospective transition or modified retrospective transition method.

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