Any financial institution, or business, that openly and frequently engages in lending money in the form of mortgage loans takes on a lot of responsibility, socially, fiscally, and morally. For many people, this mortgage is the most money they’ll ever ask for or borrow from any institution at any point in their lives. Because of this, it becomes a moral imperative, as well as a sensible financial and public relations stance, to be a good lender and to do all the due diligence that is required to ensure that the loans conform to all applicable rules and regulations, and for this reason, it is important that they hire a Certified Public Accountant to be their mortgage accountant.
A mortgage loan is a very common loan, and for most people, it will be an integral part of their home purchase. The idea behind a mortgage loan is that an individual offers up some sort of collateral, real property or a share in some real property, and in exchange the bank gives the individual money approaching the value of the collateral. The lender then receives, over time, the return of the money loaned in principle (which is the initial amount of money loaned), plus profit in the form of interest on that initial amount, compounded however so often at whatever rate is agreed upon (and is common in the area, as well as what rate the borrower’s credit qualifies them for). The mortgage loan is designed to be paid down in installments over the period of a set number of years, until, after paying the entire principle, plus the accrued interest, the property is no longer mortgaged, and the bank no longer has a claim to any share of it.
On the other hand, sometimes the loan will go south. The borrower will not be making payments, either because they don’t wish to, or because, due to whatever issue, they simply don’t have the money. At this point, the lender has only one resort, which is foreclosure. This is a legal process through which the lender takes, from the borrower, their portion of, or entirety of, real property, due to failure to pay. This leaves the lender with property, or a share of property, that they have to offload in some way, by selling it to someone else, in order to recover the money they had lent out.
So, how does a mortgage accountant help, and what kind of accountant is a mortgage accountant? A mortgage accountant is a Certified Public Accountant, one of the higher echelon members of the accounting hierarchy, someone who has gone through certification at a state level and then has invested the time and money into continuing to stay up-to-date with the ever-changing world of financial rules and regulations. Professional mortgage accounting focuses on issues that lenders may have concern about, like forward mortgage loan sales commitments, closed loans held for sale, mortgage servicing rights, and interest rate lock commitments.
Forward mortgage loan sales commitments are used to help a lender avoid interest rate risk when making an interest rate lock commitment to a borrower. An interest rate lock commitment is exactly what it sounds like, a commitment that a lender makes to a borrower that they will ‘lock’ the rate of interest for a certain period of time, and that, during that time, the rate will not fluctuate. A Certified Public Accountant acting as a professional mortgage accountant will be well equipped to help a lender to determine a rate of interest that is likely to allow them to make a profit on the loan, while ensuring that they don’t suggest a rate so high that no one would agree to it. A CPA will also be well equipped to help determine what the future rate fluctuations are likely to be, and in some cases, it just won’t be in the best interest of the lender to offer a locked rate.
A Certified Public Accountant will also ensure that all payments and all interest accrued are well documented and properly recorded, which is extremely important in the case of something as necessary in our modern society as a mortgage loan has become. Having someone well versed in both accounting and the rules and regulations involved in making mortgage loans is a great asset for any bank. It’s also great for peace of mind, because discrepancies in bookkeeping and failure to follow certain rules and regulations can, in some extreme cases, be a huge legal and financial issue for a bank.