January 2026 – Purchased Seasoned Loans: A New Accounting Framework Explained

LoanStreet Monthly Newsletter — January 13, 2026

In this month’s edition of The LoanStreet Beat, we dive into a recent FASB Addendum (ASU 2025-08) and its impact on loan participations. We will discuss what the addendum covers, as well as what it means for buyers and sellers of loans.

Below, we will start with a recap of an active economic news cycle and share our observations on loan trading.

Enjoy, share and please comment below!

LoanStreet Market Commentary

With the government shutdown in October and November 2025, questions emerged around the reliability of data released in December. The November CPI report showed that core CPI, which excludes food and energy, rose 2.6% YoY, the slowest pace since March 2021. Additionally, fewer than half of the CPI components increased by more than 2% YoY, marking the first time this has occurred since 2019.

That said, the shutdown complicates the interpretation of these figures. Many data points used in the report were carried forward from September, potentially making inflation appear artificially subdued during those months. Compounding this effect, the shutdown extended into November, meaning some updated data coincided with Black Friday and associated discounting, which may have further distorted the results.

Even if inflation is not cooling as rapidly as the latest report suggests, the data still point to a broader disinflationary trend. Shelter inflation, which is the largest portion of the index, is unlikely to reaccelerate given the weaker direction rental rates have been heading.

Turning to employment, the market is certainly cooling but new jobs are still being added. The most recent report, for December data, showed a payroll increase of 50k, well below the 70k which was expected. Further, downward revisions to the November and October numbers totaled 181k. For the year, the average monthly payroll gain was 49k, compared to 168k back in 2024. An interesting data point was the unemployment rate, which dropped from 4.5% to 4.4%, a function of fewer layoffs as well as fewer people returning to the workforce.

Loan Trading Trends and Implications

After a record number of deals closed in the fourth quarter of 2025, 2026 is off to a strong start. Many of the sellers we work with are entering the year with a defined participation strategy. A key concern, however, is loan sale profitability in a declining rate environment. Credit unions must remain competitive in their local markets while continuing to originate loans that are attractive and profitable in the secondary market.

One of the primary challenges is aligning the timing of institutional rate changes, shifts in buyer yield expectations, and movements in underlying benchmark rates. For a typical auto loan pool, the two-year Treasury often serves as the benchmark yield. From there, expected losses and an additional spread are added to arrive at a marketable yield. Benchmark rates can move materially throughout the day, while credit union loan rates are typically repriced more slowly such as on a monthly or even quarterly basis. In a declining rate environment, institutions that reprice monthly tend to lower rates more quickly, driving origination volume toward them. Meanwhile, credit unions that maintain higher rates may benefit from higher premiums at the time of sale with lower origination volumes, though they eventually must reprice to remain competitive and sustain origination volumes.

Lastly, buyer yield expectations are a function of their own internal rates and what they see in the secondary market. As long as there are sellers who are able to originate and sell loans with above market rates, yields on loan pools will remain elevated. Sellers without clear insight into secondary market pricing may simply set premiums high enough to cover costs and generate a modest profit. Even if those loans clear at yields above prevailing market levels, the seller remains satisfied as long as profitability is preserved.

In 2025, selling loans was simple as there was plenty of profitable volume. In 2026, however, as loans reprice, credit unions will need greater awareness of where loans are trading and how their originations rates (and costs) compare to market yields. As local market rates move lower, it will be increasingly important to avoid overly aggressive repricing to lower rates that could leave institutions holding loans that are no longer marketable.

Deep Dive: Purchased Seasoned Loans

On November 12, 2025, the FASB issued an amendment to the accounting guidance for purchased loans (ASU 2025-08). In this month’s newsletter, we take a deeper look at what this update means for loan participations and how institutions can prepare for the upcoming changes. The guidance will be effective for fiscal periods beginning after December 15, 2026, with early adoption permitted.

First, the ASU introduces a new category of loans: Purchased Seasoned Loans (PSL). PSL are defined as loans purchased more than 90 days after origination. To qualify, the purchaser must not have been involved in the loan’s origination—for example, a credit union purchasing loans from a non-bank originator that underwrites using the credit union’s buy box would not meet this criterion. The ASU establishes a new accounting model for PSL, which will materially change how credit losses are reflected in an institution’s financial statements.

Under the prior model, there was no distinction in how allowance for credit losses was recorded for originated loans versus PSL. In both cases, expected credit losses were required to be estimated and recognized immediately as a credit expense, resulting in a day-one hit to the income statement. The only exception was for Purchased Credit Deteriorated (PCD) assets; loans acquired after credit quality had already declined. For PCD loans, the purchase price was assumed to reflect the diminished credit quality, so the allowance for credit losses was added to the loan’s basis and amortized over time rather than expensed immediately.

Under the new ASU, PSLs receive similar treatment to PCD loans under the previous framework. The allowance for credit losses is added to the purchase price of the loan and amortized over its life rather than recognized as an immediate expense. Conceptually, this makes sense: when purchasing seasoned loans, the buyer pays a market price that already reflects expected credit losses. For example, an institution may pay a price of 102 for a pool of loans with embedded credit risk, whereas the same loans might command a price of 103 absent that risk. The one-point difference represents the embedded credit loss allowance, requiring an additional upfront provision would effectively double-count the expected losses.

Back in the February 2025 edition of the LoanStreet Beat, we discussed the impact that CECL has on participation decisions. The view was that many institutions were averse to participations that require a high CECL reserve because of the impact on their income statement, even if the purchase makes sense from a risk-return perspective. The new ASU addresses this concern, removing the large income hit buyers incurred when purchasing loans which required a large loss allowance.

Let us examine the same example we used back in February of last year, a purchase of an RV pool vs an auto pool.

In the above example, we noted that the buyer would need to set up a $2.03MM reserve on day-one, which would impact their income statement. While the RV pool offered a better risk-adjusted return, the initial reduction to income might be tough to swallow.

Under the new guidance, the $2.03MM in loss allowance would be added to the purchase price of the loan pool and amortized down over time. If we assume the pool was purchased at par (100%), the loss reserved would add roughly 6.67% to the purchase price, increasing it to 106.67%. From there, the price would be amortized over time using the method the credit union chooses, let’s use a straight-line over the WAL method, for illustrative purposes. Taking the 106.67% price and amortizing it evenly over 4 years results in an annual loss expense of 1.67%, or approximately $500k, instead of the approximate $2MM which was recognized day one in the previous model.

As the loans further season, the loss expectations might change, those changes would flow directly to the net income as a credit loss expense. This would continue to follow the existing CECL framework.

With this addendum, having a process in place to accurately measure the appropriate loss expectations is as important as ever. As we’ve discussed in the past, sellers should provide static loss data in order to give buyers the most complete pictures of how loans of different vintages have performed. Based on the static data, buyers will need to make adjustments based on the specific pool they are purchasing, see our LoanStreet Beat article back from August of 2024 for more details. Lastly, ongoing monitoring of the purchased loans is required in order to make the necessary adjustments to the original reserve.

If this feels overwhelming, be sure to reach out to your LoanStreet coverage team, who can point you to tools we’ve developed to help streamline this process. From amortizing premiums and loss allowances to tracking ongoing adjustments, our analytics and reporting solutions are designed to simplify and automate these requirements.

While CECL implementation reshaped the types of loans institutions purchase, this new addendum takes a more nuanced approach. With this update, we expect buyer focus to return to risk-adjusted yield, rather than the day-one impact to the income statement from CECL.

Monthly Economic Data Summary

• Based on the 12/5/2025 report, which reported September data, the PCE gauge of inflation was up 0.3% MOM and 2.8% YOY, both in line with estimates.
• From the same report, core PCE, which excludes food and energy, was up 0.2% MOM and 2.8% YOY. Both inline with estimates.
• On 12/18/2025 we received the latest CPI gauge of inflation, the core number was 2.6%, below the 3% estimate, while the non-Core was up 2.7%, below the 3.1% estimate.
• The latest job report for December showed a 50k increase in nonfarm payrolls, below the 70k which was estimated.
• The latest used-vehicle Manheim Market Report for December showed a rise of 0.4% from a year ago.
• The Case-Shiller home price index showed national home prices dropped MOM by 0.3% while increasing YOY by 1.4%. These are lagging data and reflect the CS indices for 10/25.
• Based on the CME market watch tool, the expectation is for the first rate cut of 2026 to happen in June with two cuts expected by end of year.