What is Chargeoff?
A chargeoff occurs when a lender removes a loan from its books as an asset and records a loss. For consumer loans, chargeoff typically happens at 120-180 days of delinquency per regulatory guidance. For commercial loans, chargeoff may occur earlier if the lender determines the loan is impaired. The chargeoff amount is the balance written off minus any expected recovery. Net chargeoffs (gross chargeoffs minus recoveries) are the actual credit loss realized by the lender. Chargeoff rates are a lagging indicator; they reflect defaults that occurred months earlier. For SBA FOIA analysis, chargeoff status and amounts are the primary data points for calibrating default and severity models.
How LoanBook Uses Chargeoff
LoanBook uses SBA FOIA chargeoff data to calibrate the SBA 7(a) and 504 default models. The SBA Lender Quality Analysis scores banks based on their chargeoff rates relative to national averages. Chargeoff data drives the lender quality multipliers applied in prepay and default calculations.
Frequently Asked Questions
What is the difference between default and chargeoff?
Default is the event; the borrower stops paying. Chargeoff is the accounting action, the lender writes down the loan. Default precedes chargeoff by weeks or months. Default rates (CDR) are used in pricing models; chargeoff rates are used in loss analysis and lender quality scoring.
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