Whether a bank is valuing their loan portfolio for financial reporting purposes under ASC 825 or pursuing an acquisition, it is important to review the current cost structure being incurred to service different loan types.
As forbearance has been provided to certain borrowers, the cost to service these loans has likely increased and thus, has decreased the value of certain loans in the portfolio.
Reviewing these servicing costs is important to accurately price an acquisition or to fairly disclose the market value of the loan portfolio in the bank's financial statements.
Banks and mortgage servicers have been expecting an avalanche of requests for loan modifications when federal mortgage forebearance rules were announced last year. But the further out the deadline gets, the bigger the writedowns that banks and servicers will have to swallow. The FHFA's decision last month to further extend forbearance relief until September 2021 — giving borrowers with federally-insured loans a total of 18 months’ reprieve on mortgage payments — has scrambled the response by mortgage servicers.