SBA Prepay Commentary
July 2021 SBA Prepayment Speeds
Prepayment speeds on both equipment and real-estate loan pools increased for the fourth straight month. Worry among small business owners over quality of labor continues to be a pressing concern, as over a quarter of respondents to the NFIB Small Business Economic Survey labeled it as their single most important problem. NFIB’s June monthly jobs report found that 46% of owners reported having job openings that they were unable to fill. To put that in perspective, the historical average is only 22% over the last 48 years. Overall, the NFIB Small Business Optimism Index rose from 99.6 to 102.5 in June. This is notable because the month-over-month change in June’s value has often been a first indication of prepayments flattening out during the autumn season. Prior to 2020’s pandemic-driven market, the change for June’s Optimism Index value compared to the prior month’s had been unchanged or decreased in nine of the last ten years. It will be interesting to see in the coming months whether prepayments follow historic trends of slowing when entering the fall or if this unexpected increase in small business owners’ optimism coincides with speeds diverging from seasonal trends.
Equipment loan pools’ prepayments increased from 12.1 to 14.0 CPR. Most individual vintages followed the overall trend of increasing in speeds for the month. Prepayments on real-estate loan pools also picked up slightly, going from 11.8 to 12.2 CPR, though most individual vintages actually experienced a decrease.
Equipment Loan Pool CPRs
- Prepayments on most vintages increased for the month.
- The largest pick up was experienced by the 2015 vintage, which went from 15.2 to 24.0 CPR.
- All vintages were above their respective 6- and 12-month average speeds.
|1Equipment loan pools have original WAMs between 8 and 13 years|
Real-Estate Loan Pool CPRs
- Interestingly, while prepayment speeds on real-estate pools were overall higher, most individual vintages experienced a decrease.
- The largest increase was experienced by the 2008 vintage, which went from 2.1 to 23.0 CPR. The largest decrease was experienced by the 2010 vintage, which decreased from 15.5 to 5.2 CPR.
- Most newer vintages are paying above their respective 6- and 12-month averages, while the comparisons are more mixed for older pools.
|2Real-estate loan pools have original WAMs greater than 18 years|
Prepared according to methodologies described by SIFMA.
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Analyst, Investment Product Strategies
Kevin A. Smith, CFA
SVP, Director Investment Product Strategies