Today, the SEC staff posted to its Web site a sample “Dear CFO” letter on accounting and disclosure issues related to potential risks and costs associated with mortgage and foreclosure-related activities or exposures. The purpose of the letter, which was sent to certain public companies, is to remind registrants of their disclosure obligations related to (1) MD&A under Item 303 of Regulation S-K, (2) legal proceedings under Item 103 of Regulation S-K and instructions to Forms 10-Q and 10-K, and (3) the guidance in ASC 450-20 on probable or possible loss contingencies.

The letter instructs registrants to consider enhanced disclosures about the impact, obligations, and potential losses as a result of representations and warranties to purchasers of whole mortgage loans or through a securitization (as part of asset-backed securities). Purchasers would include government-sponsored entities, private-label mortgage-backed security investors, financial guarantors, and others.

Registrants are instructed to consider the contents of the letter in their upcoming Forms 10-Q and subsequent filings. Details about the disclosure considerations are available in the sample letter.