Pub 10 2021 Issue 2

Pub. 10 2021 Issue 2 11 Mortgage Investment Services Corporation 22316 Midland Drive • Shawnee, KS • 66226 • 913-390-1010 NMLS# 194708 • A Kansas licensed mortgage company #MC 0001182 Missouri Residential Mortgage Loan Broker Licence # 10-1912 Oklahome Mortgage Broker #MB001953 Colorado License #100044344 Nebraska Licensed Mortgage Company NMLS#194708 20 + Years! Depend On Us! For 20 years, community banks in the Midwest have depended on MISC’s expert mortgage services for their customers. • Free Loan Officer Training & Webinars • Offer all secondary market loan programs: VA, FHA, USDA/RD, Conventional & Jumbo • Earn more fee income with less risk Call or email today. Let’s discuss how MISC can help you! Joan Emas, Account Executive Andrew Holtgraves , Vice President Cell: 816-810-8878 Cell: 913-558-2555 Email: Joan@MISCHomeLoans.com Email: Andrew@MISCHomeLoans.com NMLS: #276932 Associate Member An entity shall consider adjustments to historical loss information to reflect changes in current conditions and reasonable and supportable forecasts. These adjustments may be qualitative in nature. In plain English, the CECL gods say that one starts with historical loss information and adjusts for factors today and factors in the future. These factors are called the “current condition adjustment” and “forecasted loss adjustments.” Nowhere within Topic 326 does it state current condition and forecast adjustments need to be quantitatively derived from complex statistical models, such as regression, that predict future losses based on historical relationships of loss to changes in economic indicators such as unemployment, commodity prices, interest rate movement, etc. There is no prescriptive method outlined in Topic 326 related to current condition forecast adjustments. The development of these critical assumptions can be performed in various ways, including top-level qualitative adjustments. With that being said, documentation of how qualitative assumptions were chosen, derived, and consistently applied is critical to successful adoption. Peer Loss Information and the Historical Loss Window Myth: The use of peer losses is required when developing historical loss analyses. Reality: Topic 326 states historical loss information can be sourced from internal, external, or a combination of both when developing historical loss analyses. Nowhere in the topic does it state that external information, i.e., peer loss data, is required. Myth: An institution needs many years of historical loss information to adequately estimate future credit losses. Reality: Topic 326 does not state historical loss information is required for a full economic cycle or many years. Instead, it only states that management may use a historical period representing management’s expectations for future credit losses. If management believes losses from 2010 are not representative of losses in 2024, that information should not be used. However, there may be a benefit in using a long- term historical loss average to supplement periods outside of a bank’s forecast period, typically one to two years. Having more loss information at your disposal helps support reserves without heavy reliance on qualitative loss factors. Software Application s Myth: Financial institutions should purchase software that will help estimate credit losses to comply with the standard. continued on page 12