March 11, 2013
CPR Report Volume 7, Issue #2
By Bob Judge, Government Solutions
We sat down with Bob Judge, Partner, Government Loan Solutions to discuss the new CPR Report “Prepays Jump 46% in January”
Government Loan Solutions is a provider of valuation services, prepayment analytics and operational support for the SBA marketplace.
Bob Coleman: Now, in this month’s CPR Report you’re saying, in your statistics, that prepayments are up 46%. What does that mean for SBA lenders in the secondary market?
Bob Judge: Well basically, defaults have remained very low, which they’ve done for the last 6-8 months; and this month, as well as next month, we’re starting to see an increase in voluntary prepayments, fairly considerable increases, which have pushed overall prepayments from the 5-6% range to now the 7-8% range for January and February. Now while this may not be, it may come right back down again, but the trend seems to be that we’re looking at higher voluntary prepayments likely because the economy is looking like it’s doing better, and this could push again prepayments into a 1 or 2 CPR percent higher than they had been.
Bob Coleman: How does that affect the secondary market? How does that affect the lenders out there?
Bob Judge: Basically it could affect the secondary market in that it could put pressure on premiums at some point because of the fact that if prepayments are rising, your returns are not going to be as high as they were especially when you were paying almost 20% premiums.
Bob Coleman: Do me a favor – put this rise in perspective. How does this compare to before the economic downturn?
Bob Judge: Well it’s still a situation – this is more akin to what happens during a period of economic growth where voluntary prepayments start to go higher and defaults remain low. So overall we’re still in a very good situation compared to historical, especially in the last 15 to 20 years; but it does bear watching to see how high voluntary prepayments can rise. So right now we’re still in good shape, but you just have to keep paying attention to what’s going on to make sure it doesn’t get too far ahead of us, in which case it could impact the secondary market.
Bob Coleman: Great. Bob Judge, Government Loan Solutions out of Cleveland. Bob, thank you very much.
Bob Judge: Thank you Bob.