Ref# 2014-30
Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: ASU 2014-04 & ASU 2014-14 – Classification of Mortgage Loans Upon Foreclosure
Check (applicable entity):
Modification of existing SSAP
New Issue or SSAP
P/C Life Health
Description of Issue:
ASU 2014-04, Receivables – Troubled Debt Restructuring by Creditors – Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure (ASU 2014-04) was issued in
January 2014. This objective of this ASU is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized.
ASU 2014-14, Receivables – Troubled Debt Restructuring by Creditors – Classification of Certain
Government-Guaranteed Mortgage Loans Upon Foreclosure (ASU 2014-14) was issued in August 2014.
The objective of this ASU is to reduce the diversity on how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans upon foreclosure. This ASU identifies that some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The amendments require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.
The GAAP guidance in ASU 2014-04 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after Dec. 15, 2014. For entities other than public business entities, the amendments in ASU 2014-04 are effective for annual periods beginning after Dec.
15, 2014, and interim periods within annual periods beginning after Dec. 15, 2015.
The GAAP guidance in ASU 2014-14 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after Dec. 15, 2014. For all other entities, the amendments in the ASU are effective for annual periods ending after Dec. 15, 2015, and interim periods beginning after Dec. 15, 2015.
(Although the language is different in the two ASUs, they essentially have the same 2015 effective date
(interim and annual) for public entities, and 2015 annual / 2016 interim for non-public entities.)
Key Aspects for Residential Mortgage Loan Collateralized by Real Estate in Foreclosure (ASU 2014-04)
A Creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate properly collateralizing a consumer mortgage loan only upon the occurrence of either of the following: a.
The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the
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Ref# 2014-30 borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law. b.
A borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.
Disclosure is required (interim and annual) of the carrying amount of foreclosed residential real estate properties held at the reporting date as a result of obtaining physical possession. Additionally, the entity shall disclose the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process accordingly to the local requirements of the applicable jurisdiction.
Key Aspects for Residential Mortgage Loan Collateralized by Real Estate in Foreclosure (ASU 2014-14)
A guaranteed mortgage loan receivable shall be derecognized and a separate other receivable shall be recognized upon foreclosure (that is when a creditor receives physical possession of real estate property collateralizing a mortgage loan) if the following conditions are met: a.
The loan has a government guarantee that is not separable from the loan before foreclosure. b.
At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim. A creditor would be considered to have the ability to recover under the guarantee at the time of foreclosure if the creditor determines that is has maintained compliance with the conditions and procedures required by the guarantee program. c.
At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.
Upon foreclosure, the separate other receivable shall be measured based on the amount of the loan balance (principle and interest) expected to be recovered from the guarantor.
Existing Authoritative Literature:
SSAP No. 37—Mortgage Loans (SSAP No. 37) provides guidance for the accounting and reporting of mortgage loans, including guidance for loans that are in default, being voluntarily conveyed, or being foreclosed. SSAP No.
37 adopts :

FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan (FAS 114),

FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan—Income
Recognition and Disclosures, an amendment of FASB Statement No. 114 , for collateral dependent loans with the following modifications: a.
b.
Impairment shall be measured based on the fair value of the collateral less costs to obtain and sell, whereas that is just one option under FAS 114; and
The reporting entity is required to record any other than temporary impairment as a realized loss and shall not record subsequent recoveries in fair value.
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Ref# 2014-30

ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance
For Credit Losses (ASU 2010-20) paragraphs 310-10-50-7, 310-10-50-7A, 310-10-50-15, and
310-10-50-29(b) of for mortgage loans only. Other disclosure requirements of ASU 2010-20, and the application of the adopted disclosures to other investments or receivables are rejected as not applicable for statutory accounting.

FASB Emerging Issues Task Force Issue No. 84-19, Mortgage Loan Payment Modifications .
SSAP No. 37 rejects:

FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases

FASB Emerging Issues Task Force No. 88-17, Accounting for Fees and Costs Associated with
Loan Syndications and Loan Participations, and

AICPA Practice Bulletin 6, Amortization of Discounts on Certain Acquired Loans .
SSAP No. 36—Troubled Debt Restructuring (SSAP No. 36) provides guidance for situations in which the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise grant. SSAP No. 36:

Adopts with Modifications FASB Statement No. 15 , Accounting by Debtors and Creditors for
Troubled Debt Restructurings (FAS 15) to specify that creditors shall reclassify assets obtained in a troubled debt restructuring from loans to the appropriate asset account at the time the creditor obtains clear title to the asset, except for mortgage loans which shall be reclassified at the beginning of the redemption period unless it is probable that the mortgage loan will be redeemed and with modification to require that gains and losses from extinguishment of debt be reported as capital gains or losses, and charged to operations.

Adopts FASB ASU 2011-02, A Creditors Determination of Whether a Restructuring Is a
Troubled Debt Restructuring, paragraphs 310-40-15-13 through 310-40-15-18 and 310-40-15-20.

Adopts with Modification disclosure requirements included in paragraphs 310-10-50-33 through
310-10-50-34 of the FASB Codification originally incorporated from ASU 2010-20, Receivables
(Topic 310), Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses , deferred by ASU 2011-01, Receivables (Topic 310), Deferral of the Effective
Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 and reinstated through ASU 2011-02. These disclosure requirements have been modified to be applicable for all troubled debt restructurings within the scope of SSAP No. 36, rather than limited to troubled debt restructurings of “financing receivables.” The revisions adopted in August 2012 from ASU 2011-
02 and ASU 2010-20 are effective January 1, 2013, with early application permitted.

Adopts FASB Statement No.
114, Accounting by Creditors for Impairment of a Loan (FAS 114) paragraphs 9, 22, and 25. Paragraphs 6.d., 13 and 21 of FAS 114 are rejected.

Adopts FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan—Income
Recognition and Disclosures as it relates to troubled debt restructuring.

Adopts FASB Technical Bulletin 81-6, Applicability of Statement 15 to Debtors in Bankruptcy
Situations and FASB Technical Bulletin 80-2, Classification of Debt Restructuring by Debtors and Creditors .
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Ref# 2014-30

Adopts FASB Emerging Issue Task Force No. 87-18, Use of Zero Coupon Bonds in a Troubled
Debt Restructuring ,

Adopts FASB Emerging Issue Task Force No. 87-19, Substituted Debtors in a Troubled Debt
Restructuring ,

Adopts With Modifications FASB Emerging Issue Task Force No. 89-15 , Accounting for a
Modification of Debt Terms When the Debtor is Experiencing Financial Difficulties consistent with the modifications to FAS 15,

Adopts FASB Emerging Issues Task Force No. 96-22, Applicability of the Disclosures Required by FASB Statement No. 114 When a Loan Is Restructured in a Troubled Debt Restructuring into
Two (or More) Loans and

Adopts FASB EITF 02-4: Determining Whether a Debtor’s Modification or Exchange of Debt
Instruments is Within the Scope of FASB Statement No. 15.
Additionally, although FASB Statement No . 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases (FAS 91) was rejected in SSAP
No. 26—Bonds, Excluding Loan-Backed and Structured Securities , SSAP No. 36 is consistent with paragraph 14 of FAS No. 91.
SSAP No. 36 rejects FASB Emerging Issues Task Force No. 94-8, Accounting for Conversion of a Loan into a Security in a Troubled Debt Restructuring and rejects FASB Technical Bulletin 94-1 , Application of Statement 115 to Debt Securities Restructured in a Troubled Debt Restructuring .
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): None
Information or issues (included in Description of Issue) not previously contemplated by the
SAPWG: None
Convergence with International Financial Reporting Standards (IFRS): IFRS does not contain any guidance specific to the reclassification of collateralized mortgage loans to foreclosed residential real estate property. Additionally, IFRS does not contain any guidance specific to the classification of foreclosed mortgage loans that are guaranteed by a government-sponsored program.
Recommending Party:
Julie Gann – September 23, 2014
Recommended Conclusion or Future Action on Issue:
It is recommended that the Statutory Accounting Principles (E) Working Group move this item to the nonsubstantive active listing and expose nonsubstantive revisions to SSAP No. 36, SSAP No. 37 and SSAP No. 40 to prescribe the accounting and reporting for 1) foreclosed mortgage loans collateralized by real estate, and 2) foreclosed mortgage loans guaranteed by a government sponsored program. The revisions are proposed to be nonsubstantive revisions, effective immediately after adoption.
(If adopted in 2015, the effective date for 2015 reporting would be consistent with the effective date for public-company reporting under US GAAP.) With the standard nonsubstantive adoption date, explicit effective date guidance has not been proposed within the revisions. The revisions to the guidance in SSAP No. 40 only provide reference to the guidance in SSAP No. 37.
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Ref# 2014-30
The revisions propose to adopt with modification ASU 2014-04 and to adopt ASU 2014-14. The following modifications are proposed:
1) The ASU 2014-04 guidance has been modified to remove the restrictions limiting it to residential real estate with a consumer mortgage loan. Rather, the guidance for SSAP No. 37 has been drafted to encompass all situations in which a mortgage loan foreclosure has occurred and the reporting entity receives the real estate collateralizing the mortgage loan. The guidance in ASU
2014-04 was limited to residential real estate as the FASB noted that was where the prevalent diversity occurred in practice. Additionally, the FASB elected not to expand the scope to include commercial real estate, as the foreclosure laws for commercial real estate are significantly different. For statutory accounting, as there is not separate guidance for non-consumer mortgage loans or residential or commercial real estate collateral, the revisions proposed in this agenda item are intended to encompass all mortgage loans collateralized by real estate.
2) The ASU 2014-04 guidance has been modified to require a “lower-of” valuation method for the real estate recognized from a foreclosure. The GAAP guidance allows the real estate received as collateral for the satisfaction of a mortgage loan to be recognized at fair value less costs to sell.
For statutory accounting, a gain shall not be recognized as a result of a foreclosure and the reclassification of assets between two reporting schedules (Schedule A & Schedule B). Rather, the revisions propose recognition of the real estate at the lower of the outstanding mortgage loan balance or fair value less costs to sell, with recognition of a realized loss (as applicable).
Recognition of any gain would be deferred until the real estate property is sold and the excess proceeds over the mortgage loan balance are allowed to be retained by the reporting entity.
(Mortgage loan arrangements may require remittance to the debtor of the excess proceeds received from selling the real estate after the outstanding mortgage loan balance is satisfied.) As such, consistent with existing statutory accounting principles, these gains shall not be recognized until they are realized (real estate sold) and reflect “permanence” to the reporting entity (e.g., unlikely to be reversed or attributed to others). (The concept of “lower of the book value of the mortgage loan or fair value” is currently included in SSAP No. 36, paragraph 18.)
Proposed revisions to SSAP No. 36—Troubled Debt Restructuring: (Bolded Areas for Reference.)
Accounting by Creditors
17. A creditor shall account for a troubled debt restructuring according to the type of the restructuring
(receipt of assets in full satisfaction, modification of terms, combination of types). Generally, troubled debt restructuring involving the transfer of assets shall be accounted for at the fair value of the assets received. Troubled debt restructuring involving modification of terms shall be accounted for at fair value
(as determined by acceptable appraisal methodologies) in accordance with SSAP No. 100 —Fair Value
Measurements (SSAP No. 100) . If the restructured loan is collateral dependent, fair value shall be the fair value of the collateral. If the restructured loan is not collateral dependent, fair value shall be determined in accordance with SSAP No. 100. If the determined fair value of the loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), a new cost basis shall be established at the fair value with the difference being recorded as a realized loss in the statement of operations. After the troubled debt restructuring, a creditor shall account for the assets consistent with the statutory guidance for such assets.
18. A creditor shall account for assets, including foreclosed property and equity interests in corporations, joint ventures, or partnerships, received in satisfaction of the loan at their fair value
(as determined by acceptable appraisal methodologies) at the time of restructuring or at the book value of the loan if lower . If the fair value is less than the book value, the required writedown shall be recognized as a realized capital loss. The creditor shall reclassify the asset from loans to the appropriate asset account, such as real estate or other invested assets, at the time that the creditor obtains clear title
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Ref# 2014-30 to the asset except for mortgage loans which shall follow the guidance in paragraph 18 of SSAP No. 37.
After the troubled debt restructuring, a creditor shall account for the assets received in satisfaction of the loan consistent with the statutory guidance for similar assets.
19. Any fees received in connection with a modification of terms of a troubled debt restructuring shall be applied as a reduction of the recorded investment in the loan. All costs associated with the restructuring, including direct loan origination costs, shall be charged to expense as incurred .
Disclosure by Creditors
23. A creditor shall disclose in the financial statements the information captured in paragraphs 23.a.,
23.b. and 23.c. about troubled debt restructuring as of the date of each balance sheet presented.
Disclosures captured from paragraphs 23.d. and 23.e. are required in the statutory audited financial statements only: a. As of the date of each statement of financial position presented, the recorded investment in the loans for which impairment has been recognized in accordance with this statement and the related realized capital loss. (For mortgage loans, the disclosures in SSAP No.
37 shall also be completed.) b. c. d.
The amount of commitments, if any, to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructuring
The creditor’s income recognition policy for interest income on an impaired loan
For troubled debt restructurings that occurred during the annual reporting period, aggregated by type of instrument, qualitative and quantitative information on (1) how the items were modified and (2) the financial effects of the modifications e. If restructured within the previous 12 months and there has been a payment default during that period, disclose qualitative and quantitative information about the defaulted instruments, aggregated by type of instrument, including: (1) type of instruments that defaulted and (2) the amount of recorded investments for which default occurred
Refer to the preamble for further discussion regarding disclosure requirements. 24.
25. This statement is not intended to modify the requirement for life and health insurers to complete the Annual Statement exhibit disclosing long-term mortgage loans in good standing with restructured terms.
Proposed revisions to SSAP No. 37—Mortgage Loans:
Impairments
16. A mortgage loan shall be considered to be impaired when, based on current information and events, it is probable that a reporting entity will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. According to the contractual terms means that both the contractual principal payments and contractual interest payments of the mortgage loan will be collected as scheduled in the mortgage agreement. A reporting entity shall measure impairment based on the fair value (as determined by acceptable appraisal methodologies) of the collateral less estimated costs to obtain and sell. The difference between the net value of the collateral and the recorded investment in the mortgage loan shall be recognized as an impairment by creating a valuation allowance with a corresponding charge to unrealized loss or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to unrealized gain or loss. Subsequent to the initial measurement of impairment, if there is a significant change (increase or decrease) in the net value of the collateral, the reporting entity shall adjust the valuation allowance; however, the net carrying amount of the loan shall at no time
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Ref# 2014-30
17. For loans that are in default, being voluntarily conveyed, or being foreclosed, additional expenses, such as insurance, taxes, and legal fees that have been incurred to protect the investment or to obtain clear title to the property shall not be added to the carrying value, but shall be expensed when incurred. (Staff note – The revisions to paragraph 17 are proposed to be consistent with SSAP No. 36, paragraph 19.)
18. exceed the recorded investment in the loan. For reporting entities required to maintain an asset valuation reserve (AVR), the unrealized gain or loss on impairments shall be included in the calculation of the AVR. If the impairment is other than temporary (INT 06-07) , a direct write down shall be recognized as a realized loss, and a new cost basis is established. This new cost basis shall not be changed for subsequent recoveries in value. Mortgage loans for which foreclosure is probable shall be considered permanently impaired.
Reporting entities shall decreognize mortgage loans and recognize real estate (subject to SSAP
No. 40) when receiving physical possession (resulting in a in substance repossession or foreclosure) of real estate property collateralizing a mortgage loan only when the following occurs: a. The reporting entity obtains legal title to the real estate property upon completion of a foreclosure. This includes situations in which the reporting entity receives legal title to the real estate property even if the borrower has redemption rights that provide the borrower with the legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.
19.
20. b. The borrower conveys all interest in the real estate property to the reporting entity to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the reporting entity.
Real estate recognized pursuant to paragraph 18 shall be initially recognized at the lower of the outstanding mortgage loan balance or fair value less costs to sell. If the real estate is recognized at fair value less costs to sell then a realized loss shall be recognized for the difference between that amount and the outstanding mortgage loan balance. (A gain shall not be recognized as a result of foreclosure.)
Reporting entities that hold mortgage loans that are government-guaranteed shall derecognize the mortgage loans and recognize a separate other receivable (as an aggregate write-in for an other than invested asset) upon foreclosure (that is the reporting entity receives physical possession of the assets regardless of whether formal foreclosure proceedings take place, or in which the reporting entity otherwise obtains one or more of the debtor ’s assets in place of all or part of the receivable) if the following conditions are met: a. The loan has a government guarantee that is not separable from the loan before foreclosure. b. At the time of foreclosure, the reporting entity has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the reporting entity has the ability to recover under that claim. A reporting entity would be considered to have the ability to recover under the guarantee at the time of foreclosure if the reporting entity determines that it has maintained compliance with the conditions and procedures required by the guarantee program. c. At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.
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Ref# 2014-30
21. The separate other receivable recognized under paragraph 20 shall reflect the amount of the mortgage loan balance (principal and interest) expected to be recovered from the guarantor. A realized loss shall be recognized for any amount of the loan balance that is not expected to be recovered. If the conditions in paragraph 20 are not met, upon foreclosure, the real estate collateralizing the mortgage loan
(if any) shall be recognized pursuant to paragraph 19.
22. The separate other receivable recognized under paragraph 20, even if over ninety days past due, is an admitted asset similar to other receivables guaranteed by the government. If, in accordance with
SSAP No. 5R, it is probable the balance is uncollectible, any uncollectible receivable shall be written off and charged to income in the period the determination is made.
(All other paragraphs will be renumbered accordingly.)
Disclosures
25. The following disclosures shall be made in the financial statements: a. Fair values in accordance with SSAP No. 100 —Fair Value Measurements; b. Concentrations of credit risk in accordance with SSAP No. 27 as well as 1) information as to how and to what extent management monitors the credit quality of its mortgage loans in an ongoing manner, and 2) to assess the quantitative and qualitative risks arising from the credit quality of its mortgage loans. To meet these objectives reporting entities shall provide information, aggregated by type, about the credit quality of mortgage loans including the following; i. A description of the credit quality indicator ii. iii.
The recorded investment in mortgage loans by credit quality indicator
For each credit quality indicator, the date or range of dates in which the information was updated for that credit quality indicator
Description of the valuation basis of the mortgage loans; c. d. Information on the minimum and maximum rates of interest received for new loans made by category;
Maximum percentage of any one loan to the value of security at the time of the loan; e. f. An age analysis of mortgage loans, aggregated by type, capturing: 1) recorded investment of current mortgage loans, 2) recorded investment of mortgage loans past due classified as 30-59 days past due, 60-89 days past due, 90-179 days past due, and greater than 180 days past due; 3) recorded investment of mortgage loans 90 days and
180 days past due still accruing interest; 4) interest accrued for mortgage loans 90 days and 180 days past due; and 5) recorded investment and number of mortgage loans where interest has been reduced, by percent reduced; and
Taxes, assessments, and amounts advanced not included in the mortgage loan total. g.
26. The following additional disclosures shall be made for impaired loans: a. The total recorded investment in impaired loans, aggregated by type, at the end of each period and (i) the amount for which there is a related allowance for credit losses determined in accordance with this statement and the amount of that allowance and (ii)
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Ref# 2014-30 b. c. d. e. the amount for which there is no related allowance for credit losses determined in accordance with this statement;
The policy for recognizing interest income on impaired loans, including how cash receipts are recorded;
For each period for which results of operations are presented, the average recorded investment, aggregated by type, in the impaired loans during each period, the related amount of interest income recognized during the time within that period that the loans were impaired, the recorded investments on nonaccrual status pursuant to SSAP No. 34, paragraph 6 and, unless not practicable, the amount of interest income recognized using a cash-basis method of accounting during the time within that period that the loans were impaired; and
For each period for which results of operations are presented, the activity in the allowance for credit losses account, including the balance in the allowance for credit losses account at the beginning and end of each period, additions charged to operations, direct write-downs charged against the allowance, and recoveries of amounts previously charged off.
The aggregate amount of mortgage loans derecognized as a result of foreclosure and the corresponding amounts of: i. Real estate collateral recognized. ii. Other collateral recognized. iii. Receivables recognized from a government guarantee of the foreclosed mortgage loan.
27. Refer to the preamble for further discussion regarding disclosure requirements. The disclosure requirements of paragraph 20.b. shall be included in the annual audited statutory financial reports only.
Relevant Literature
28. This statement adopts FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan
(FAS 114), and FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan —Income
Recognition and Disclosures, an amendment of FASB Statement No. 114 , for collateral dependent loans with the following modifications: c. d.
Impairment shall be measured based on the fair value of the collateral less costs to obtain and sell, whereas that is just one option under FAS 114; and
The reporting entity is required to record any other than temporary impairment as a realized loss and shall not record subsequent recoveries in fair value.
29. This statement adopts disclosure requirements in paragraphs 310-10-50-7, 310-10-50-7A, 310-10-50-
15, and 310-10-50-29(b) of ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance For Credit Losses (ASU 2010-20) for mortgage loans only. Other disclosure requirements of ASU 2010-20, and the application of the adopted disclosures to other investments or receivables are rejected as not applicable for statutory accounting. This statement also adopts ASU 2014-
14, Receivable – Troubled Debt Restructuring by Creditors, Classification of Certain Government-
Guaranteed Mortgage Loans Upon Foreclosure. FASB Emerging Issues Task Force Issue No. 84-19,
Mortgage Loan Payment Modifications .
30. This statement adopts with modification ASU 2014-04, Troubled Debt Restructuring by Creditors
– Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.
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Ref# 2014-30
The ASU 2014-04 guidance has been modified to remove the restrictions limiting it to residential real estate with a consumer mortgage loan. The guidance reflected in this statement shall encompass all foreclosed mortgage loans collateralized by real estate. Additionally, ASU 2014-04 guidance has been modified to require a “lower-of” valuation method for the real estate collateral recognized from a foreclosure. This guidance will result in a deferral of any gain as a result of a mortgage loan foreclosure.
Recognition of any gain shall be deferred until the real estate property is sold and the excess proceeds over the mortgage loan balance are attributable to the reporting entity and not required to be remitted back to the mortgage loan debtor.
31. This statement rejects FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases , FASB Emerging Issues
Task Force No. 88-17, Accounting for Fees and Costs Associated with Loan Syndications and Loan
Participations, and AICPA Practice Bulletin 6, Amortization of Discounts on Certain Acquired Loans .
Effective Date and Transition
32. This statement is effective for years beginning January 1, 2001. Initial recognition of the impairment losses resulting from the application of this statement shall apply to mortgage loans held at
January 1, 2001, and be based on management’s best estimates as of that date. Insurers shall release all unamortized amounts included in IMR related to prepayment penalties upon adoption of Codification and recognize such change in accordance with SSAP No. 3 —Accounting Changes and Corrections of Errors
(SSAP No. 3). A change resulting from the adoption of this statement shall be accounted for as a change in accounting principle in accordance with SSAP No. 3 .
Excerpt of SSAP No. 40—Real Estate Investments:
7. The cost of real estate represents the fair value of the consideration exchanged plus any costs incurred to place the real estate asset in usable condition, including but not limited to, brokerage fees, legal fees, demolition, clearing and grading, fees of architects and engineers, any additional expenditures made for equipment and fixtures that are made a permanent part of the structure and certain interest costs as provided for in SSAP No. 44 —Capitalization of Interest . Where cost includes both land and building, the cost shall be allocated among the assets purchased based on the relative values determined using appraisals, as described in paragraph 12. The cost shall be reduced by any amounts received for sales of rights or privileges in connection with the property or by any cash recoveries received after acquiring title to the property. The cost of real estate which has been foreclosed upon shall be initially established in accordance with SSAP No. 36 —Troubled Debt Restructuring and SSAP No. 37 —Mortgage
Loans . The cost of contributed real estate shall be initially established in accordance with SSAP No. 95 —
Exchanges of Nonmonetary Assets, A Replacement of SSAP No. 28 —Nonmonetary Transactions (SSAP
No. 95) as a nonreciprocal transfer.
Status:
On November 16, 2014, the Statutory Accounting Principles (E) Working Group moved this item to the nonsubstantive active listing and exposed nonsubstantive revisions to SSAP No. 36, SSAP No. 37 and
SSAP No. 40, as illustrated above. These changes prescribe accounting and reporting for foreclosed mortgage loans collateralized by real estate and for foreclosed mortgage loans guaranteed by a government sponsored program. These revisions propose to adopt with modification ASU 2014-04,
Receivables – Troubled Debt Restructuring by Creditors – Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans Upon Foreclosure and adopt ASU 2014-14, Receivables –
Troubled Debt Restructuring by Creditors – Classification of Certain Government-Guaranteed Mortgage
Loans Upon Foreclosure .
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