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
- Most vintages saw an increase in speeds this month.
- The largest increase was seen by the 2013 vintage, which rose from 8.0 to 30.7 CPR.
- Most vintages’ prepayments are now above their 6-month average speeds. The results are mixed when comparing to vintages’ 12-month average speeds.
|1Equipment loan pools have original WAMs between 8 and 13 years|
Real-Estate Loan Pool CPRs
- After steadily declining for eight of the last nine months, real-estate loan pools’ overall prepayment speeds have increased.
- Most individual vintages experienced an increase in prepayments.
- The largest increase was seen by the 2011 vintage, which rose from 15.7 to 27.4 CPR. This vintage experienced the largest month-over-month increase last month as well, going from 4.0 to 15.7 CPR.
- Most vintages are either below to in-line with their 6-month averages and are still below their 12-month averages.
|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
Michael S. Erhardt, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP