April SBA Prepayment Speeds
April 13, 2018
SBA floating-rate pool CPRs reversed last month’s decreases, rising to the highest levels observed since program changes were implemented by the SBA last October. April speeds rose almost 3 CPR for equipment-loan pools and 4 CPR for real-estate-backed pools, after declining 2 CPR and 2.5 CPR the prior month for equipment-loan and real-estate-backed loan pools, respectively. While an increase in speeds was expected, this increase exceeds what would be implied by technical factors alone. However, a six-month moving average reveals only a modest increase across most vintages. The seasoning influences in prepayments remain completely intact, albeit at slightly higher levels this month.
Looking through the noisy variations of the last two months there is little doubt that other factors beyond technicals exert at least a modest influence on prepayments. The most notable recent influence has been the flattening of the yield curve. History demonstrates and logic implies that a flatter yield curve might induce faster speeds, especially for real-estate-backed pools. A greater fraction of real-estate-backed pool borrowers are likely to have fixed-rate options available to them with which to replace their floating-rate SBA loans. Based on these observations and seasonal influences, next month’s speeds are likely to be more in line with the moving averages observed thus far.
Prepared according to methodologies described by SIFMA.
Director of Investment Product Strategies