Accounting Rules May Hamper Servicers.

Accounting standards that stringently define the scope of servicer discretion in dealing with properties backing securitized loans could clash with the proposal to modernize the real estate mortgage investment conduit structure to provide more discretion for servicers of securitized mortgage loans.

In connection with the accounting questions, which have been an issue for a few years now, the Financial Accounting Standards Board has set up a special project looking into what sort of discretion a servicer is allowed to exercise within the scope of FAS 140 and continue to meet qualifying special purpose entity guidelines.

This project would help define what sort of activities a servicer could undertake without needing to consolidate loans that back a securitized transaction on their balance sheets, in other words, without losing their QSPE status.

Lenders and servicers would like to qualify for QSPE status so as to get assets off their balance sheets, which would give them more financial flexibility.

Among the activities that the accounting body is deliberating are:

* A special purpose entity's ability to waive a due-on-sale provision.

* Situations involving substitution of collateral underlying a commercial mortgage-backed securities pool.