These are sometimes referred to as internal refinancings. To the extent these events are considered prepayments, they must be considered in the estimate of expected credit losses under CECL, as they would shorten the expected life of the instrument. However, we believe there are various components of the entitys expected credit losses estimation process that may lend themselves to an evaluation utilizing backtesting, such as to assess a models responsiveness to changing economic forecasts or its correlation between economic conditions and credit losses. An entity will need to support the reasonableness of the expected credit losses estimate in its entirety. These modifications may be done in conjunction with declining interest rates in a competitive lending environment, or to extend the maturity of a debt arrangement based on a favorable profile of the debtor. Moreover, if the selected model employs quantitative techniques, the validation team will need experience in statistics and quantitative concepts. This would include reassessing whether foreclosure is probable. Financial instruments subject to the CECL impairment model must be pooled with other financial instruments if they share similar risk characteristics. Company name must be at least two characters long. Examiners are reviewing the models, but they are also critically reviewing the process of how it was developed and the overall governance structure. Close to the maturity date of the loan, Borrower Corp requests an extension of the original maturity date and an advance of additional funds. Another lender would likely consider future economic forecasts in deciding whether to refinance the loan. To the extent an entitys quantitative models and historical data do not reflect current conditions or an entitys reasonable and supportable forecasts, such factors should be included through qualitative adjustments such that the estimate in total is reasonable. These modifications may be done in conjunction with declining interest rates in a competitive lending environment, or to extend the maturity of a debt arrangement based on a favorable profile of the debtor.
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