MBA Asks Delay of Credit Loss Accounting Standard Implementation

The Mortgage Bankers Association asked Treasury Secretary Steven Mnuchin to delay implementation of the Current Expected Credit Loss accounting standard, saying the standard would have “adverse impact” on single-family, commercial and multifamily mortgages.

In the Nov. 19 letter, MBA President and CEO Robert Broeksmit, CMB, asked Mnuchin–in his capacity as chairman of the Financial Stability Oversight Council, which oversees the CECL standard issued by the Financial Accounting Standards Board–to delay the 2020 implementation pending completion of an MBA-recommended transparent quantitative impact study, to be conducted by the FSOC, to analyze the standard’s impact.

“MBA believes that the requirements of the CECL standard, which is effective for SEC registrants in 2020, and for all other companies in 2021, will adversely impact the availability, structure and price of credit, with a larger proportion of such impact landing on longer-term loans, such as 30-year single-family residential mortgages, commercial and multifamily mortgages, student and business loans,” Broeksmit wrote.

FASB issued the new accounting standard, Accounting Standards Update (ASU) No. 2016-13, Topic 326, Financial Instruments–Credit Losses (, on June 16, 2016. The new accounting standard introduces the current expected credit losses methodology (CECL) for estimating allowances for credit losses. It applies to all banks, savings associations, credit unions and financial institution holding companies regardless of size, that file regulatory reports for which the reporting requirements conform to U.S. generally accepted accounting principles, known as GAAP.

The MBA letter notes CECL “probably represents one of the most significant rewrites of U.S. GAAP in the past 40 years, and once implemented, will fundamentally change how banks and other financial companies recognize credit losses in their loan and held-to-maturity debt security portfolios.”

For example, MBA said in contrast to the traditional U.S. GAAP approach, which required companies to establish a reserve when a loan loss is probable and reasonably estimable, CECL requires day-one upfront recognition of credit losses using long-term economic forecasts over the contractual life of the loan but does not allow a similar upfront recognition of corresponding future revenues associated with the loan.

The letter also noted for many MBA community bank members, more than 50% of their loan portfolios constitute residential mortgage products; therefore, the unforeseen impact of CECL implementation on residential mortgage lending will have “significant detrimental effects” on these banks. “This unforeseen impact of CECL, in addition to the fact that the heavy costs of implementation naturally hit smaller organizations the most, could result in costly and unintended adverse consequences for the community banking industry,” MBA said.

MBA asked the FSOC to conduct a quantitative study on the overall impact of CECL implementation on the financial services industry and pending completion of such study, engage with FASB to request a delay in implementation. MBA noted the Treasury Department itself in 2017 recommended such a study.

“This study is critical, as it will help the banking agencies as well as affected banks and non-banks understand the full impact, and all the unforeseen effects of the CECL standard, which creates new and challenging issues for financial companies specifically, and also for consumers and businesses in general,” Broeksmit wrote.

Additionally, MBA said because many of the requirements of CECL pose “very real and, in many cases, unidentified challenges and issues” that could only be assessed and analyzed by a quantitative impact study initiative, it urged the FSOC to seek a delay in implementation pending completion of the study.

“The impacted industry (banks and other stakeholders) should be given an opportunity to review and react to the results and proposed solutions contained in the study before making the document final,” Broeksmit said.