Services // Loan Portfolio Accounting and Tax

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FDIC Assisted Acquisition Services

ETI has an established working relationship with a Big 4 firm to help banks meet their tax reporting requirements following acquisitions of failed institutions where FDIC assistance is involved. In these transactions, the U.S. tax rules require buyers to allocate basis to any acquired loan or security that is different than the basis assigned to those loans for U.S. GAAP purposes. Furthermore, the U.S. tax rules require loan-by-loan accounting for any loan purchased with discount and impose limitations on bad-debt deductions and mark-to-market losses. For U.S. GAAP accounting purposes, loans are grouped into pools and discount is accreted on a pooled basis. Therefore, buyers of troubled institutions cannot simply “follow books” in preparing tax returns. ETI’s software provides the tools necessary for banks and other buyers to compute tax basis at the loan-by-loan level, compute market discount on a monthly, quarterly and annual basis, compute gains and losses when a bank receives loss guarantee payments from the FDIC, and compute bad debt losses and recoveries and any applicable limitations.

Pools of Distressed Mortgages and Non-Performing Loans

ETI performs calculations of taxable income associated with pools of distressed mortgages and non-performing loans (NPLs) for clients who have purchased mortgages at significant discount. We assist banks, non-bank financial institutions, and fund managers. ETI provides our clients with outstanding service by using our knowledge and understanding of the behavior of the related assets, the complex tax considerations associated with the calculation of taxable income, and the challenges of developing databases to efficiently store the transaction data.

ETI completes loan-level accruals of income using the constant yield method. We take careful consideration of the non-accrual status of individual loans for interest income recognition and in determining whether loans have had significant modifications. When modifications do occur, our software is capable of employing varying tax strategies to accelerate or decelerate the recognition of gains to suit the needs of our individual clients, and can shift the strategies as a client’s needs change.

Mortgage Servicing Rights and Excess Servicing Strips

ETI assists our clients with the calculation of monthly taxable income for portfolios of mortgage servicing rights (MSRs) and the related excess servicing strips.  We generally complete the calculations using a level yield methodology with appropriate prepayment assumptions, at the loan or pooled levels.