When discussing CECL — implementation of the Current Expected Credit Loss (CECL) accounting standards — Agora Data senior vice president of strategic relationships Jim Bass said bluntly during this month’s Non-Prime Auto Financing Conference: “It’s about to get real.”
Bass, who also is chairman of the National Automotive Finance Association and host of that annual event in Plano, Texas, elaborated about why he made that assertion for this episode of the Auto Remarketing Podcast.
To listen to the conversation, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
While mandated implementation might be delayed, Experian and Oliver Wyman are still looking to help auto finance companies meet the initial set of deadlines for the Financial Accounting Standards Board’s current expected credit loss (CECL) model via a new solution and webinar.
According to a news release distributed on Wednesday, Experian and Oliver Wyman have joined forces to help financial institutions adhere their portfolios to the new guidelines. Delivered through Experian’s Ascend Technology Platform, Ascend CECL Forecaster is a new user-friendly, web-based application that combines Experian’s loan-level data as well as third-party macroeconomic and valuation data with Oliver Wyman’s CECL modeling methodology in an effort to accurately calculate potential losses over the life of a contract.
“Financial institutions across the board feel unprepared and overwhelmed with the new accounting standards on the horizon — in fact, many lack the historical data and technology required to meet the new guidelines,” said Robert Boxberger, Experian’s president of decision analytics, North America.
Our collaboration with Oliver Wyman is designed to streamline the road to compliance — but more importantly, enables lenders of all sizes to continue to properly assess their portfolios and help borrowers secure affordable access to credit,” Boxberger continued.
Built using advanced machine learning and statistical techniques, the web-based application is designed to maximize the more than 15 years of historical credit data spanning previous economic cycles to help financial institutions gauge loan portfolio performance under various scenarios. Experian pointed out Ascend CECL Forecaster does not require additional data nor does it require a secondary integration from the financial institution and enables organizations to more quickly test their portfolios under different economic factors.
Moreover, financial institutions receive guidance from industry experts to assist with implementation and strategy, according to the firms.
“Oftentimes financial institutions need to ask the question, ‘Do I build or buy?’ The former tends to require significant cost, time and resources, such as data and technology,” said Anshul Verma, who leads the CECL product development at Oliver Wyman.
“Ascend CECL Forecaster dramatically reduces the need for additional resources and consolidates necessary data and advanced technology under one umbrella, and ensures the capability remains world class as the regulatory requirements or business needs evolve. Large financial institutions with an existing CECL solution will also find immense value in having an independent tool as the benchmark to provide added comfort in results given the complexity and scrutiny involved,” Verma continued.
Ash Gupta, a senior advisor to Oliver Wyman and former chief risk officer for American Express, shared this assessment.
“Ascend CECL Forecaster is a critical capability needed urgently by all lending and financial institutions,” Gupta said. “The collaboration between Experian and Oliver Wyman allows a frictionless synthesis of industry data, capabilities and experience to serve customers in both first and second line of defense.”
Experian’s Ascend Technology Platform has been helping businesses, including the world’s top financial institutions, stay ahead of rapidly changing consumer behaviors since 2017. Through the platform, customers can build their own predictive models and gain actionable insights by applying machine learning and AI techniques to vast amounts of anonymized credit, client and alternative data sets. Its analytical tools mine rich layers of content to gain unique insights about businesses and consumers.
Results are delivered in near real-time, via flexible self-service tools and powerful visualizations, all supported by industry-leading data security.
To help financial institutions better understand and prepare for the upcoming CECL standards, Experian and Oliver Wyman will host a webinar on Aug. 22 1 p.m. ET. To register, go to this website.
For more information about Ascend CECL Forecaster, visit http://www.experian.com/cecl.
The Financial Accounting Standards Board (FASB) looked to reinforce its position concerning the upcoming mandates placed on banks, credit unions and finance companies in connection with reserving for losses, emphasizing the changes can be implemented without incurring “significant costs.”
Last week, FASB issued a proposed Accounting Standards Update (ASU) that included amendments designed to address issues raised by stakeholders, which have triggered proposals by federal lawmakers who are looking to delay these significant accounting changes.
To recap, the Financial Accounting Standards Board (FASB) is looking to ensure that financial institutions have solid measures in place to ensure they have appropriate reserves for any future losses based on the life of each auto loan. As a result, the board has instituted its new Current Expected Credit Loss model (CECL).
The new model will require higher levels of loan loss reserves and lead to changes in lending practices and portfolio management. It will also require a significant amount of data capture, analysis and modeling to meet the implementation deadline of Dec. 15.
According to the update, FASB sought to address four issues along with sharing a summary of its amendments and proposals. The rundown included:
Issue No. 1: Negative allowance for purchased financial assets with credit deterioration
Summary: The proposed amendments would clarify that an entity should include expected recoveries of the amortized cost basis previously written off or expected to be written off in the valuation account for purchased financial assets with credit deterioration (PCD). The proposed amendments also would clarify that recoveries or expected recoveries of the unamortized noncredit discount or premium should not be included in the allowance for credit losses.
Issue No. 2: Transition relief for troubled debt restructurings
The proposed amendments would provide transition relief by permitting entities to adjust the effective interest rate on existing troubled debt restructurings (TDRs) using prepayment assumptions on the date of adoption rather than the prepayment assumptions in effect immediately before the restructuring.
Issue 3: Disclosures related to accrued interest receivables
The proposed amendments would extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis.
Issue No. 4: Financial assets secured by collateral maintenance provisions
The proposed amendments would clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient.
“The amendments in this proposed update include items brought to the board’s attention by stakeholders. The proposed amendments would clarify, correct, and improve the guidance related to the amendments,” board members said. “Therefore, the board does not anticipate that entities will incur significant costs as a result of these proposed amendments.
“The proposed amendments would provide the benefit of improving the consistent application of GAAP by clarifying guidance that already exists within GAAP,” they added.
