Retail Lending Examination Procedures

Vintage

Vintage-based forecasting tracks delinquency and loss curves by time on books as different vintages or marketing campaigns season. The patterns or curves are predictive for future vintages, provided adjustments are made for changes in underwriting criteria, altered cutoffs, and economic conditions. The advantages of vintage-based forecasting are that its accuracy is usually better than roll rate forecasts for charge-offs beyond a one-year horizon, provided that the need for adjustments is readily observed. Management should adjust the future loss expectations when new vintages are observed to deviate markedly from past curves and trajectories, or if economic and market conditions change. The disadvantages of a vintage-based forecast are that it is more subjective and less accurate than roll rates for short-term forecasting and that it relies on the assumption that new vintages will perform similarly to older vintages.

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