Accounting Standard Updates

NAIC’s COVID-19 Impact Decisions: INT 20-04 – Mortgage Loan Impairment Assessment

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Hot Take:

Hot Take

The NAIC Statutory Accounting Principles Working Group (SAPWG) April 15 conference call addressed several COVID-19 effects on potential troubled debt issues. This discussion addresses the impact of loan forbearance or modifications on the statutory accounting and reporting for mortgage loans, investments with underlying mortgage loans, and bank loans.

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Background

INT 20-04, Mortgage Loan Impairment Assessment Due to COVID-19 is a limited time exception granted by the SAPWG to defer impairment assessments for mortgage loans, investments which principally hold underlying mortgage loans, and bank loans. Bank loans are defined as fixed income instruments, representing obligations of a borrower, made by a financial institution. INT 20-04 makes it very clear, with the exception of bank loans, investments included within the scope of SSAP No. 26R – Bonds, or investments included in other noted standards that are not directly impacted by underlying mortgage loans, are not included as a component of this interpretation. Interested parties requested the inclusion of all fixed income securities, but the final determination did not provide universal coverage.

So, what’s the rub?

The forbearance or modifications in principal or interest must be directly attributable to the COVID-19 issue and are only applicable to the March 31st and June 30, 2020, financial statements. Further, the exceptions are not applicable to the September 30, 2020, financial statements. SAPWG will review subsequent events to assess whether the additional extension is warranted.

To be eligible for the limited time assessment of impairment, the applicable loan must have been current as of December 31, 2019 (i.e. not more than 30 days past due). Other SSAP promulgations not previously noted included within the scope of the limited exception INT 20-04 comprise mortgage-related investments as follows:

  • SSAP No. 37 – Mortgage Loans – all mortgage loans applicable to SSAP 37;
  • SSAP No. 30 – Common Stock – SEC-registered investments with mortgage loan underlying aspects (e.g. mortgage-backed mutual funds);
  • SSAP No. 43R – Loan-backed and Structured Securities – securities with underlying mortgage loans (RMBS, CMBS, CRTs);
  • SSAP No. 48 – Joint Ventures, Partnerships and Limited Liability Companies – (e.g. private equity mortgage loan funds).
Other SAPWG Conference Call Decisions:

Three additional INT promulgations were adopted during the April 15 conference call. You can click below to read more about each issue.