ASU 2014-14: Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40)

By: Rob Hamilton

Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure

In August 2014, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2014-14, Receivables—Troubled Debt Restructurings by Creditors, which provides specific guidance on how to treat foreclosures on loans with government guarantees. GAAP provides guidance on the classification and measurement of assets received through foreclosure, but does not specifically address government-guaranteed loans, which has led to diversity in practice.

The most common government-guaranteed loans are those offered by the US Department of Veterans Affairs (VA), the US Department of Housing and Urban Development (HUD), and the Federal Housing Administration (FHA). ASU 2014-14 requires that “a guaranteed mortgage loan receivable shall be derecognized and a separate other receivable be recognized upon foreclosure…if the following conditions are met:

  1. The loan has a government guarantee that is not separable from the loan before foreclosure;
  2. At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim. A creditor would be considered to have the ability to recover under the guarantee at the time of foreclosure if the creditor determines that it has maintained compliance with the conditions and procedures required by the guarantee program.
  3. At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.”

The amount recognized as “other receivable” is based on the amount of principal and interest expected to be recovered from the guarantor, which is consistent with the amount that would have been recognized previously.

ASU 2014-14 is effective for annual or interim periods beginning after December 15, 2014, for public entities. For all other entities, it is effective for annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015. The guidance may be adopted using a prospective or modified retrospective transition method.

Early adoption is permitted if ASU 2014-04—Receivables—Troubled Debt Restructurings by Creditors: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure has already been adopted. An entity must use the same transition method for ASU 2014-04 and ASU 2014-14.


Hamilton Professional PictureRob Hamilton, CPA is a senior associate with Johnson Lambert LLP and a North Carolina native. He has over two years of experience providing auditing services to insurance companies, employee benefit plans, and not-for-profit organizations. Rob graduated from Virginia Tech with a B.S. in Marketing Management and from N.C. State with a Master of Accounting degree.