Mortgage Bankers Association 2004 National Secondary Market Conference

1. Mortgage Bankers Association 2004 National Secondary Market Conference Understanding the Business Implications of New and Proposed Accounting Rules April 19, 2004

2. 2 Presenters Timothy Kviz PricewaterhouseCoopers LLP Michael Sperger GMAC Commercial Holding Corp. Thomas Ramm First Horizon Home Loans Bob Reynolds SunTrust Mortgage

3. 3 Agenda SAB 105 Beneficial Interests in Securitized Financial Assets Mortgage Servicing Rights at Fair Value Three Company Perspectives

4. 4 SAB 105 - Overview FASB adds Loan Commitments project to agenda in October 2003 MBA and industry representatives deliver overview of issues in an educational session to FASB Board in December 2003 AICPA National Conference on Current SEC Developments SEC states loan commitments are written options Value of loan commitments must be a liability, since they are written options Substantial efforts made to address SEC position

5. 5 SAB 105 - Scope Applies to loan commitments for mortgage loans held for sale within the scope of FAS 149 and DIG Issue C-13 Retail originations and Wholesale commitments � broker and table funding Applies to all mortgage loans held for sale discussed in FAS 65 Residential AND commercial Wholesale commitments - closed loans from correspondents If they meet the definition of a derivative under FAS 133, apply SAB 105 by analogy

6. 6 SAB 105 - Effective Date Effective for all loan commitments entered into on or after April 1, 2004 Loan commitments entered into prior to effective date SEC will not object to accounting treatment that differs from guidance in SAB 105

7. 7 SAB 105 - Key Provisions Initial recognition (i.e., Day 1 accounting) Cannot consider cash flows related to servicing in value Cannot consider internally-developed intangible assets in value Disclosures No new requirements APB 22, FAS 107, FAS 133, MD&A

8. 8 SAB 105 � Other Considerations Implementation issues EITF 02-3 � no value on Day 1 Day 2 accounting not specifically addressed Changes in fair value recorded in the income statement Commitment can have an asset value Fair value excludes normal servicing and internally developed intangible assets FIN 39 implications Cannot net asset and liability positions

9. 9 SAB 105 � Other Considerations Components of Value

10. 10 SAB 105 � Other Considerations Once a loan has closed Value of commitment rolled into the basis of the loan Basis adjustment not amortized � held until loan is sold Loan value for LOCOM or FAS 133 Fair Value hedge accounting includes ALL components of value Servicing NOT excluded FAS 133 � FV hedging � full change in fair value � cannot exclude servicing component FAS 65 � full change in fair value for market the company operates FAS 141 � full value of loan until servicing is contractually separated

11. 11 Beneficial Interests in Securitized Financial Assets Current guidance Beneficial interests exempt from FAS 133 Classified as AFS or trading if its possible the investor may not recover substantially all the recorded investment Other interests may be classified as HTM

12. 12 Beneficial Interests in Securitized Financial Assets Proposed Guidance Beneficial interests NOT exempt from FAS 133 Framework for accounting for the interests being debated Trading classification Give the holder of the beneficial interest an election to either account for their interest as a �trading security� or bifurcate an embedded derivative from the host instrument and (a) account for the embedded derivative under Statement 133 and (b) the host instrument under Statement 115 (e.g. available-for-sale).

13. 13 Mortgage Servicing Rights at Fair Value FAS 122, 125, 140 � provided accounting guidance for recognition, amortization, and impairment of MSRs FAS 133 � hedge accounting guidance DIG Issues F1 and F8 address MSR specific hedging issues Proposed Amendment to FAS 140 issued in June 2003 Comment letters from several organizations include a call for MSRs at fair value FASB receives numerous requests from constituents requesting fair value treatment for MSRs Complexity in dealing with hedge accounting, comparability, and transparency issued cited as reasons in favor of FV

14. 14 Mortgage Servicing Rights at Fair Value LOCOM Accounting Model Diversity in applying current GAAP may sometimes lead to transparency and comparability issues Stratification Amortization Valuation allowance Other than temporary impairment The application of FAS133 and LOCOM creates an accounting model that is too complex Lack of comparability and transparency

15. 15 Mortgage Servicing Rights at Fair Value Fair Value Accounting Model industry employs fair value methods in the current accounting model has proven methods in place to derive fair value estimates operational and systems concerns that were once problematic for the industry are less of a concern today elimination of certain LOCOM and FAS133 requirements would further alleviate accounting, operational and systems risks

16. 16 Mortgage Servicing Rights at Fair Value January 2004 � FASB adds project to agenda March 2004 � Educational session and meeting to discuss the project Summary of Decisions Reached: Fair value is the appropriate measurement attribute Other servicing rights to be considered for the scope of the standard Staff to investigate feasibility of a separate project to permit, but not require, entities to account for financial instruments and similar instruments at fair value (similar to IAS 39)

17. 17 Mortgage Servicing Rights at Fair Value Key decisions to be addressed in future meetings: Scope of the project Just MSRs All servicing rights All residual and beneficial interests When should fair value be applied At inception and subsequent to inception Subsequent to inception only Potential impacts on FAS 140 Additional disclosure requirements

18. 18 Mortgage Servicing Rights at Fair Value Issues if fair value is elective, or if MSRs are accounted for like available for sale investment securities: Comparability issues would still exist Reported amounts Disclosures Complexity of an AFS accounting model Applicability of EITF 99-20 Potential inconsistencies with IFRS Potential for future changes with convergence

19. 19 REPORTING MORTGAGE SERVICING RIGHTS AT FAIR VALUE Three Company Perspectives: GMAC Commercial Mortgage Holding Corp. First Horizon Home Loans SunTrust Mortgage

20. Mortgage Bankers Association 2004 National Secondary Market Conference Michael Sperger GMAC Commercial Holding Corp. April 19, 2004