Retail Lending Examination Procedures

Step 1: Calculate roll rates

Step 1 is to calculate the roll rates. [22] The computation begins with the $725 million in loans that were current in June 2000. From June 2000 to July 2000, $27 million in loans migrated from current to 30 days delinquent, which equates to a roll rate of 3.73 percent ($27 ÷ $725). From July 2000 to August 2000, $10.6 million rolled to the next delinquency bucket, representing a 39.26 percent roll rate ($10.6 ÷ $27). Continuing along the diagonal (shaded boxes), loss rates increase in the latter stages of delinquency. To smooth out some fluctuations in the data, management often averages roll rates by quarter before making current portfolio forecasts, and also compares quarterly roll rate results between quarters to analyze and adjust for seasonal effects.

Month Current Balance 30 days Roll Rate 60 days Roll Rate 90 days Roll Rate 120 days Roll Rate
Jun 2000 $724.7 $26.1$9.9$6.7$3.6
July 2000 $762.0 $27.0 3.73% $10.941.77%$7.171.27%$4.770.36%
Aug 2000 $788.6 $25.5 3.34% $10.6 39.26% $7.064.29%$4.767.56%
Sep 2000 $827.7 $29.4 3.73% $12.1 47.82% $7.9 74.88% $5.578.74%
3Q avg. 3.60% 42.95% 70.15% 72.22%
Oct 2000 $844.6 $31.1 3.76% $12.8 43.53% $8.5 70.53% $5.9 75.58%
Nov 2000 $896.3 $26.7 3.16% $12.4 40.03% $8.2 64.52% $5.9 69.49%
Dec 2000 $987.3 $30.0 3.35% $11.8 44.18% $8.2 66.31% $5.8 71.29%
4Q avg. 3.42% 42.58% 67.12% 72.12%
Loss Factors .70% 20.61% 48.41% 72.12%
22.
The schematic and example above are simplified depictions of dollar flow to illustrate the basic concept of roll rates. In reality, some balances cure (return to current), remain in the same delinquency bucket, or improve to a less severe delinquency status by the end of a period. For ease of calculation, roll rate analysis assumes all dollars at the end of a period flow from the prior period bucket.
Previous: Roll Rates Next: Step 2: Calculate loss factors by bucket.