Getting a handle on loan fees: financial institutions - from community banks and credit unions to home-financing giant Fannie Mae - have had to restate their financial results, in part because of faulty accounting for loan origination fees.

Journal of Accountancy,  August, 2007  by Valdivia, Victor

Tags: accounting, Fannie Mae, financial

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During the housing boom of 2001-2005, lenders earned substantial fees from loan origination. Such fees are accounted for according to FASB Statement no. 91, Accounting for Nonrefundable Fees and Costs Associated With Originating or Acquiring Loans and Initial Direct Costs of Leases. It directs that these fees are not reflected in earnings as soon as the lender receives them.

Instead, origination fees are netted with origination costs, and in most cases the resulting net fee is amortized over the life of the loan. This amortization is usually done under the effective-interest method ...

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