2. Ensure Efficient & Sufficient Ongoing Reporting

The most pronounced changes CECL injects into the loan participation process lies within the ongoing reporting. For instance, the accuracy of your CECL loan reserve calculation, regardless of the chosen methodology, hinges on the quality of loan-level data, such as individual loan payments and credit risk migration. Access to this data directly affects the ability of your CECL team or third-party specialist to integrate the loan participation calculation into your existing in-house process. Therefore, before entering a loan participation, both the seller and purchaser must be certain that the seller can provide ongoing information sufficient to meet the purchaser's CECL model requirements. At a minimum, confirm that the following is available at the individual loan level:

Payment level detail;
Current credit scores;
Delinquency;
Performance: Bankruptcy, foreclosure, repossessions, etc.; and
Gross charge-off, recoveries and net charge-offs.

Additionally, ensure the format of the report is easily exportable and includes key loan identifiers, such as:

Loan type;
Collateral type;
Origination date;
Maturity date;
Original credit score; and
Unique loan IDs

Providing the right information in a manageable and simplified process is not unduly burdensome to the seller if the right loan participation technology is utilized. If the sufficiency or logistics of the ongoing reporting is the only hurdle to closing on an otherwise attractive participation opportunity, re-evaluate the method that you and the counterparties originally contemplated for ongoing reporting.

Instant Insights /

4 Pieces to Solving the CECL Puzzle for Loan Participations

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