SBA Prepay Commentary

October 2020 SBA Prepayment Speeds

In last month’s SBA Prepayment Commentary, we wrote, “There is a chance … that speeds could pick up to a degree due to defaults, as there has been little talk lately about another round of Paycheck Protection Program loans after last month’s application deadline for the program.” This certainly looks to be the case, as most vintages for both equipment and real-estate loan pools experienced a bump up in speeds this month, bucking the usual downward trend experienced in the fall season. While this climb could continue going into the winter months, there is some hope to be found in the Small Business Administration’s release of a simpler forgiveness application for loans of less than $50,000. Though the most recently available figures indicate that these loans only make up 12.0% of the overall SBA money lent, this forgiveness should at least partially curb the risk of default for some businesses. This reduced risk should also partially mitigate the risk of higher speeds in the coming months, as prepayments and defaults are viewed the same way from an investor’s perspective.

Equipment loan pools increased from 5.9 to 8.5 CPR, with most individual vintages also experiencing upward trajectory. Real-estate loan pools also rose, going from 5.7 to 6.7 CPR, reversing the downward trend they had been experiencing for eight of the last nine months.

Equipment Loan Pool CPRs

1Equipment loan pools have original WAMs between 8 and 13 years

Real-Estate Loan Pool CPRs

2Real-estate loan pools have original WAMs greater than 18 years

SBA Prepayment Tables (PDF)

Prepared according to methodologies described by SIFMA.

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Adam Hofer

Analyst, Investment Product Strategies

Vining Sparks

Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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