Track and Select the Best CECL Method for YOUR Institution
PRA delivers results under your existing methodology and three of the most common methods for CECL: Vintage, Probability of Default / Severity of Loss, and Migration Analysis.
Over time you migrate towards the best one suited for your loan portfolio characteristics and loan management philosophy. Some vendors state that they don’t need any institution specific data to calculate the CECL compliant ALL because they have national data available to use. We believe that relying solely on national data will not result in you having a GAAP complaint CECL calculation. Different types of loans and different areas of the country repay and react to changes in economic conditions and changes in the real estate market differently. There are often differences in the lending guidelines, experience and expertise of loan officers, and other factors that we believe necessitates using data on your specific loan portfolio to calculate CECL even subject to such data being statistically predictive. With the ARM partnership, we will be able to benchmark the CECL accrual by considering national data.
Review Historical Change-off Data on the Websites of Regulators: the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC) and you will see vastly different charge-off data by loan types or in different areas of the country during the “Savings and Loan Crisis” of the late 1980’s and early 1990’s and the most recent “Economic Crisis” that occurred between 2007 and 2010.