MBA Applauds SEC and FASB for FAS 157 Clarification

The Mortgage Bankers Association (MBA) hailed yesterday's announcement by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) permitting the use of discounted cash flow fair value measurements under FAS 157 when no active market for a security exists.

'We want to thank the SEC and FASB for this clarification,' said John A. Courson, Chief Operating Officer of MBA. 'FAS 157 was never test driven in a market where the only transactions occurring are distressed sales. In such an environment, FAS 157 was only exacerbating the market illiquidity. This announcement should have an immediate impact allowing companies to reflect the true value of their mortgage assets and increasing capital and liquidity in today's stalled credit markets.'

According to MBA, many financial institutions have been marking down their holdings of various credit instruments to values derived from sales by distressed institutions who are selling to meet collateral calls or risk-based capital requirements. In such a market, intrinsic value and observable market prices have diverged.

The clarification announced by the SEC and FASB will enable financial institutions to value their assets based on a realistic calculated present value of future cash flows. As a consequence, the clarification should allow firms to write affected assets back up to their intrinsic values.'

The SEC's release can be found at http://www.sec.gov/news/press/2008/2008-234.htm.