SBA Prepay Commentary
August 2020 SBA Prepayment Speeds
As we have seen over the last few months, current prepayment speeds have been far lower than those of previous summers, and those for the month of August were no exception. Speeds on both equipment and real-estate loan pools were fairly in-line with last month and continue to be at a fraction of their prior levels. Now that we have passed the August 8th application deadline for the Paycheck Protection Program (PPP), future prepayments will be a function of upcoming business conditions as well as whatever form of small-business stimulus Congress decides upon next. While additional funding is expected, it is likely that the next stimulus package will be both smaller and have more restrictions than the previous PPP round. This scaling back could increase the likelihood of defaults for some businesses, which in turn would bring an uptick in speeds to some degree, as defaults are viewed as prepayments from an investor’s perspective.
Equipment loan pools increased from 6.2 to 6.8 CPR, with mixed results among vintages. Real-estate loan pools, on the other hand, dropped slightly from 6.3 to 6.2 CPR, their sixth decrease in the last seven months.
Equipment Loan Pool CPRs
- Results were relatively evenly mixed on a vintage-by-vintage basis.
- The largest decrease was seen by the 2014 vintage, which dropped from 16.2 to 11.6 CPR. The largest increase was seen by the 2013 vintage, which picked up from 11.1 to 18.9 CPR.
- Excluding 2013 pools, every vintage is still below its 6- and 12-month averages.
|1Equipment loan pools have original WAMs between 8 and 13 years|
Real-Estate Loan Pool CPRs
- After the slight uptick last month, real-estate loan pools reverted to the downward trend they have had since January.
- Results among individual vintages were mixed.
- The largest decrease was seen by the 2015 vintage, which dropped from 9.5 to 4.9 CPR. The largest increase was seen by the 2008 vintage, which climbed from 0.3 to 13.5 CPR.
- Most vintages are still seeing speeds below their 6- and 12-month averages, though there are a handful of exceptions.
|2Real-estate loan pools have original WAMs greater than 18 years|
Prepared according to methodologies described by SIFMA.
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MBS Prepay Commentary (August) | Monthly, 5th business day
Kevin A. Smith, CFA
SVP, Director Investment Product Strategies
Analyst, Investment Product Strategies