When you see a negative forward-looking adjustment in the CECL model, it means the projected loss rate in the near-term future for that pool is lower than the average historical loss rate. This is not unusual, especially when the lookback period goes back to the worst time periods in the previous credit cycle. If the current economic data projects that losses will be lower than the historical loss rate (and the historical loss rate is higher than the minimum loss rate assumption), then the model will lower the reserve for the pool by applying a negative forward-looking adjustment. The bank can make further refinements in the total pool loss rate by adjusting the custom qualitative factors.
If you prefer the model not to make negative forward-looking adjustments, you can go to Settings -> Fwd Looking Assumptions and check the box next to “Do not allow negative forward-looking adjustments.” You must hit Submit on that page and then click the green “Submit/Run” button on the Settings page in order to apply the change to the current report.
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