Credit Model Settings
Explains how to update the historical loss and qualitative factors in the Credit Model Settings application. This information is used to calibrate the PD/LGD tables used in the CECL model.
To access the Credit Model Settings application, navigate to “Credit Model Settings” on the left side menu. |
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Update Historical Loss
The first step under the Historical Loss section allows you to modify historical loss experience.
Ensure the correct cycle date is selected before modifying historical loss assumptions.
Data Source
Depository Loan Data: This option allows the user to upload historical loss data based on customized loan type break-outs.
The Sample File provides a basic template that can be modified when the Depository Loan Data option is selected.
Call Data: This option pre-populates the Balance, Charge-Offs, and Recoveries based on the data in the CALL report for Bank clients and is based on the CALL loan type break out.
Uploading Historical Loss Data
When the input file has been prepared, click on the Choose File hyperlink and browse for the applicable file. Click the Upload hyperlink to update the information.
If the Historical Loss was completed in a prior cycle, download the Current View file to download the information displayed on screen for further modification.
Audit Log
Clicking the clock icon will display the modification history, including the original file upload, user, and date/time of the modification. Previously uploaded files can be downloaded from here.
Applying the Changes
Once the historical loss data has been uploaded, click the Next button to apply the changes.
This screen will display the PD/LGD assumptions that have been calibrated based on the historical loss data.
Bold font indicates the PD/LGD assumptions have been calibrated. Assumptions that are not bolded are based on our base assumptions.
The switch value hyperlink allows the user to toggle between the calibrated assumptions and our base assumptions.
The Data Transformation hyperlink will download an Excel file that illustrates how the base 720 FICO PD and 75 LTV LGD are derived based on the historical loss input.
Qualitative Factors
Qualitative (Q) factors can be used to adjust the PD assumptions calibrated in the Historical Loss section. This customization is available at both the portfolio and loan type levels.
Modifying Qualitative Factors
Ensure the correct cycle date is selected before modifying historical loss assumptions.
There are two options for editing:
- Uploading an Excel file with updated Q-Factors
- Updating the Q-Factors on screen
To upload qualitative factors, use the Choose File hyperlink, select the file, and click Upload.
Click the Download button to export the input file for modification.
To update Q-Factors on screen, enter the applicable percentage change for each qualitative factor in the designated entry box.
The changes in local and national economic and business conditions Q-Factor is based on a regression model. The assumption input is explained below:
- Unemployment Rate: Enter the expected monthly change. For example, if the expectation is that the employment rate will increase from 3.6% to 4.0% in the next 3-6 months (0.4%) the input would be 0.4/3=0.133.
- Housing Starts: Enter the expected change (in thousands). For example, if the expectation is that housing starts will increase from 1,382 to 1,682 in the next 3-6 months (300), the input would be 300/3 = 100.
To add commentary for a Q-Factor, click the comments hyperlink.
Once updated, click the save hyperlink and click next to review the calibrated assumptions.
Applying Qualitative Factors
This screen will display the PD assumptions that have been calibrated based on the historical loss data and modified qualitative factors.
The Apply Q-Factors to selection indicates whether to apply the qualitative factors to the historical loss based on Depository Loan Data, the Call Data, or our base PD/LGD assumptions. Ensure the correct option is selected before proceeding.
Review the updates and click the apply button to apply the settings.
PD/LGD
The PD/LGD screen shows the final PD/LGD tables that will be used in the model.
Ensure the correct cycle date is selected before reviewing or modifying.
To update PD/LGD assumptions without using the historical loss and qualitative factors, click the download button to export the input file. This file can be modified and uploaded to the application.
Assumptions in black font have been modified by the user. Assumptions in grey font are our base assumptions.