FASB Proposes Including Recapture in Mortgage Servicing Rights Valuation

What Is New?

The Financial Accounting Standards Board (FASB) has proposed requiring entities to include the value attributable to recapture when measuring residential mortgage servicing rights (MSRs) at fair value. The FASB’s Proposed Accounting Standards Update would amend Subtopic 860-50, “Transfers and Servicing: Servicing Assets and Liabilities.” Recapture is a servicer’s ability to solicit a borrower to refinance an existing mortgage loan and retain servicing rights on the new loan.

The guidance was proposed on September 23, 2026, and comments are requested by November 9.

Why Did FASB Issue the Proposal?

Existing guidance does not expressly address whether recapture belongs in residential MSR measurements. Some entities include recapture in MSR fair value measurements; others exclude it. Recapture may be reflected explicitly or implicitly through other valuation assumptions. Following an Emerging Issues Task Force recommendation, FASB proposed changes intended to reduce this diversity and improve comparability.

What Would the Proposal Do?

The proposal would:

• Apply to residential mortgage servicing assets and liabilities recognized under Subtopic 860-50 but not extend to servicing rights for other loan types.
• Include all contractual rights and obligations , including recapture, along with all other contractual rights and obligations in fair value of the MSR under Topic 820 unless separate recognition is required. Recapture would be part of the MSR’s unit of account.
• Apply to both initial and subsequent fair-value measurements, including impairment assessments under the amortization method. It would not change amortization mechanics or include future net-servicing income from a new loan in the existing MSR’s amortization.
• Use modified prospective transition for outstanding residential servicing assets and liabilities. Remeasurements or applicable impairment adjustments would be recognized in opening retained earnings or other appropriate equity at the beginning of the year of adoption.
• Permit early adoption with no effective date yet specified. The FASB did not propose additional recurring disclosures, although adoption disclosures would be required.

What Should Commenters Consider?

FASB invites comments about scope and operability, comparability, transition, and implementation timing. In developing comment letters, respondents could consider:

• Scope and consistency, including whether:
  • “residential mortgage loan” needs clarification, particularly for multifamily loans
  • the guidance should apply to servicing assets and liabilities for other loan types
  • the inherent uncertainty in the recapture assumption itself could limit the goal of consistency in practice
• Valuation assumptions: Assess how your model distinguishes market-participant recapture assumptions from entity-specific assumptions. Evaluate supporting data and interaction with prepayment assumptions, including risk of double-counting benefits.
• Financial effects and comparability: Quantify the potential effect on your current MSR measurements.
• Transition and readiness: Evaluate differences across servicing contracts and develop opening-equity adjustments, including possible effects on existing impairment valuation allowances. Explain time and cost needed to update models and controls.

How BRG Can Assist

BRG’s Financial Institution Advisory practice can help assess the proposal and prepare for potential accounting changes. Our professionals can provide:

• Accounting policy analysis: Assess your current policies and contractual rights against the proposal.
• Valuation and model review: Evaluate recapture assumptions and supporting data, review cash-flow methodology, and assess potential double-counting. Sensitivity analysis can help you understand the potential effect on your servicing portfolio.
• Implementation planning: Help identify model changes and control requirements, document accounting judgments, and prepare materials for discussions with auditors.