Another area where data comes into focus with CECL is related to the requirement that credit unions incorporate “reasonable and supportable forecasts” in developing the allowance for credit losses. Indeed, the forecasting component is a major component of what makes CECL different from the incurred-loss method.

However, utilizing or applying a reasonable or supportable forecast is different from getting the forecast right, Moore said. A lot of financial institutions get tripped up on the idea that they will need to substantiate that they are correct in their forecasts, he said. “The reality here is that all we have to do is apply a forecast,” he said. “I personally cannot think of a client that has been meaningfully criticized [for their forecast] to the point of having to do something different on their forecast inputs.”

External sources for forecasts are OK

The important aspect is to follow a process in forecasting and in applying the forecast to the estimate, Moore said. “That process could be going to public sources like the Fed. It could be a partnership with a private provider, and we have integrations with some of those.” The National Credit Union Administration also provides economic data related to unemployment and housing price growth at the state and city levels.

Unemployment rates, for example, could come from:

• the Federal Open Market Committee’s forecasts
• a state economic agency
• a local university that can capture the nuances of your market

The forecast is bound to change, particularly given the current economic environment, Moore said. But the application of the forecast should remain consistent through various environments.