An Examination of Mortgage Loan Servicing Rights in the Aftermath of the Subprime Mortgage Crisis of 2006

Robert J. Cochran, Hunter T. Shelnutt


This study examines whether mortgage servicing firms are capitalizing mortgage loan servicing rights (MSRs) consistent with the FASB’s objective of fair value accounting. The FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an Amendment of FASB Statement No. 140,” and SFAS No. 157, “Fair Value Measurements,” which clarified that MSRs be capitalized at their fair value. Fair value would imply that only market-related value assumptions influence the capitalization of MSRs. A previous study examined this issue prior to the 2006 financial crisis. That study found that non-market, firm-specific characteristics consistent with Positive Accounting Theory (PAT), that should have no effect on the value of MSRs, did have a statistically significant influence on the capitalization of MSRs. This issue has not been examined post-SFAS No. 156 and 157 or the financial crisis of 2006. We reexamine the issue with data gathered from 2007 through 2010. The evidence suggests that the PAT characteristics that influenced the capitalization of MSRs prior to the accounting clarification and the financial crisis do not influence the capitalization of MSRs during the post-crisis period under examination, as predicted by PAT. However, the data do present some evidence suggesting that achieving the objective of “fair value” may not be happening.

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online) Email:

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