February 25, 2009 VIA Electronic Mail (director@fasb.org) Technical Director Financial Accounting Standards Board 401 Merritt7, P.O. Box 5116 Norwalk.CT 06856-5116 File Reference; Proposed FSP FAS 107-b and APB 28-a Dear Board Members and FASB Staff: The Mortgage Bankers Association1 (MBA) appreciates the opportunity to comment on the proposed FASB Staff Position (FSP), Interim Disclosures about Fair Value of Financial Instruments (the proposed FSP). The purpose of the proposed FSP is to increase the frequency of disclosures about fair value to improve the transparency and quality of information provided to users of financial statements. FASB Statement No. 107 (Statement 107), Disclosures about Fair Value of Financial Instruments, currently requires disclosures about fair value of financial instruments in annual financial statements. The proposed FSP would require such disclosures to be made in interim financial reports as well. The proposed FSP would be effective for interim and annual reporting periods ending after March 15, 2009. MBA's Comments Support of Proposed FSP: MBA recognizes that the proposed FSP will require more disclosures under what are already tight reporting deadlines. However, given the current hybrid accounting model where some assets and liabilities are carried at amortized cost and some at fair value, MBA recognizes users of financial statements would be better served having fair value information on an interim basis. Since the required disclosures are provided on an annual basis, entities should already have infrastructure in place to prepare those disclosures. Accordingly, MBA supports the proposed FSP. However, for SEC registrants, the interim reporting period is much shorter than the annual reporting period. Therefore, MBA asks that FASB continuously keep in mind the shortened interim reporting time frame when considering the expansion of annual disclosures to interim periods. Support for Strategic Review of Fair Value Project: Paragraph 3 in the background section of the proposed FSP refers to a recent addition to the FASB agenda of a joint project with the International Accounting Standards Board (IASB) to address the complexity related to recognition and measurement of financial instruments (joint fair value project). MBA recognizes that there is a growing conflict of opinion on the usefulness of fair value accounting as now envisioned in the accounting rules. Accordingly, MBA strongly supports the joint fair value project. The MBA appreciates the opportunity to share these comments with the Board. Any questions about MBA's comments should be directed to Jim Gross, Associate Vice President and Staff Representative to MBA's Financial Management Committee, at (202) 557-2860 orjgross@mortgagebankers.org. Sincerely, John A. Courson President and Chief Executive Officer http://www.fasb.org/ocl/FSPAPB-1/53572.pdf
Question 2: What additional guidance, if any, is needed in the area of determining fair value? FASB Statement No. 157, Fair Value Measurements, defines fair value as follows: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. An orderly transaction excludes forced sales and liquidations. In its fair value measurement guidance project, the IASB is considering the appropriateness of the guidance in Statement 157, but is currently expected to issue final guidance that will contain a largely similar current exit price approach to fair value. While there are many different views concerning the appropriateness of fair value for various types of financial instruments under various scenarios, a number of constituents have expressed a desire for (a) additional application guidance for identifying illiquid or inactive markets and for determining the impact of liquidity on fair value and (b) additional disclosures on how entities have determined fair value in such circumstances. Recommendations in this area come from such otherwise divergently-viewed constituents, such as Professor Stephen Ryan, the G-30, and the SEC, in their respective papers/reports. The IASB recently issued guidance developed by an expert panel that identified issues relating to the difficulties of measuring fair value when markets are illiquid. The guidance focused on the information that can be used when markets are illiquid and emphasized the judgment needed to arrive at the fair value estimate. It also identified disclosure practices that would provide greater transparency about the use of fair value estimates in financial statements. Other efforts in this area by the IASB and the FASB were described by Gavin Francis and Russ Golden at the January 20 meeting. FOR DISCUSSION AT THE MARCH 5, 2009, MEETING OF THE FINANCIAL CRISIS ADVISORY GROUP -7- Another area for which additional guidance has been sought by constituents is contractual restrictions on transfer of liabilities. Most indebtedness can only be settled, not transferred to third parties. The FASB is currently addressing this matter with proposed FASB Staff Position (FSP) FAS 157-c, Measuring Liabilities under FASB Statement No. 157, which is being redeliberated and is expected to be issued in March 2009. The SECâs Mark-to-Market Report also calls for additional consideration by the FASB of a number of other fair value implementation matters. The FASB has vetted these matters with its Valuation Resource Group, and recently added short-term projects to consider providing additional application guidance on: ⢠Determining when a market for an asset or a liability is active or inactive ⢠Determining when a transaction is distressed ⢠Applying fair value to interests in alternative investments, such as hedge funds and private equity funds. The FASB also added a short-term project to consider requiring additional disclosures on such matters as sensitivities of fair value measurements to key inputs and transfers of items between the fair value measurement levels. The IASB is monitoring the progress of the FASBâs short-term application and disclosure projects.