January 26, 2017
By Bob Judge
Editor, CPR Report
CPR Report — SBA 7(a) Prepays Slightly Lower for 2016
In December, prepays fell by 10%, going below CPR 7% for the first time since March. A slight rise in defaults (CDR) was more than offset by a decrease in voluntary prepayments (CRR).
Specifically, defaults rose by 7% while voluntary prepayments moved down by 12% versus November numbers. For the record, defaults have remained below CDR 2% for 40 months in a row.
Turning to the details, overall prepayments fell by 10% to 6.80% from 7.54%, previously. In comparing YOY prepayment speeds for 2016 versus 2015, the end result was 2016 came in 0.89% less than 2015, mostly due to the low relative prints in Q4.
The final numbers were CPR 7.78% for 2016 versus CPR 7.85% for 2015. This is a bit of a
surprise since prepayments have been steadily rising annually since 2012, after the all-time low of CPR 5.41% in 2011, so there was no reason to think that was going to change. However, with
rates finally beginning to rise, it will be interesting to see how 2017 plays out. I doubt we will see another YOY decrease at this time next year.
As for the largest sector of the market, 20+ years to maturity, prepayment speeds fell by 13% to 6.71% from 7.73% previously.
Regarding the CPR breakdown, the CDR increased to 0.77% from 0.72% while the CRR fell to
6.03% from 6.82%.
Preliminary data for next month suggests that prepayments will go above 9% for the first time
since late 2015, so 2017 will start out on a high prepay note.
Regarding our maturity buckets, prepayment speeds fell in four out of six categories.
Decreases were seen, by order of magnitude, in the 8-10 year sector (-42% to CPR 9.14%), <8
(-22% to CPR 5.83%), 20+ (-13% to CPR 6.71%) and 10-13 (-5% to CPR 6.43%).
Increases were seen, also by order of magnitude, in 16-20, which rose by 74% to CPR
9.37% and 13-16 (+19% to CPR 6.88%).
While 2016 ended with an unexpectedly lower CPR than 2015, don’t expect the same in 2017.
Rising rates should begin to push voluntary prepayments, and overall CPRs, higher over the
next 12 months.