LAWRENCEVILLE, Ga.—Black Book has released a white paper it said helps auto lenders effectively address the Financial Accounting Standards Board’s new Current Expected Credit Loss (CECL) model.
Black Book reminded that CECL 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, 2019,” Black Book said. “With CECL’s requirement that lenders perform life-of-loan loss forecasting, as soon as a lender says yes to a loan, it must begin reserving for potential losses on that loan. This means each lender must have a much better understanding of the borrower’s financial condition, as well as accurate historical and residual collateral insight, when they make the loan.”
What Is Discussed
The Black Book white paper—Analytic-Driven Data Helps Auto Finance Lenders Mitigate Risk & Become CECL Compliant—discusses how auto finance lenders have the opportunity to rely even more on having the most accurate and up-to-date credit and collateral data on their portfolios in order to meet these new requirements, the company said.
“Auto finance companies can leverage this opportunity to convert this compliance need into a competitive advantage,” said Anil Goyal, executive vice president, operations for Black Book. “By leveraging granular data and building loan-level analytic models, auto lenders will have a better understanding of risks and improve return on capital.”
Also Addressed
The white paper addresses the following topics:
- Probability of default methodology
- Estimations of probability of default and loss given default with model samples
- CECL modeling and data readiness
- CECL’s effect on loan strategies
- How varying economic scenarios can impact lender strategies for CECL