NCUA Executive Director David Marquis said WesCorp ignored third-party vendor portfolio valuations in favor of its own modeling, which used more optimistic assumptions.
Marquis, during today's corporate stabilization Webinar, used an example of 625 outstanding mortgage-backed securities at WesCorp that had been adjusted as ratings dropped.
"They'd use a vendor to review those bonds, but they'd take the remaining bonds and run them through their own models. And while they did use the vendor's model, they'd also run them through their own modeling with their own projections and assumptions, so really, it's wasn't the vendor's model, it was the institution's model," Marquis said. "I think you can appreciate what will happen if you base your assumptions on what you hope will happen, rather than what you see is actually happening."
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In a second example, Marquis didn't name names but said of either WesCorp or U.S. Central, "the institution didn't like the [vendor's] results so they ran their own assumption and used different numbers."
"It's still a judgment call they have the right to make," he said, "but at the end of the day, it's about professional assumptions, and small incremental changes in assumptions can end in very different results."
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