Mortgage-backed securities may be exempt from new accounting rule

Investors who hold $3.5 trillion in agency mortgage-backed securities would not be required to recognize gains and losses that are driven by interest rates if proposed changes to a new derivatives accounting rule are approved by regulators.

In a 6-1 vote today, the Financial Accounting Standards Board, which sets U.S. accounting rules, approved a draft of changes that would exempt some mortgage-backed securities from complying with the rule, Financial Accounting Standard 155, Reuters reported.

Clarifying the rule could help keep mortgage interest rates lower by encouraging investors to continue to put their money in mortgage-backed securities.

Banks and insurance companies who hold mortgage-backed securities said confusion around FAS 155 contributed to a slowdown in sales of collateralized mortgage obligations (CMOs) in September.

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