February 22, 2018
CPR Report: Actual 7(a) Prepays Stay Above 14%
By Bob Judge
Editor, CPR Report
In January, total prepays, including paid excess principal, came in at 14.30%, after averaging 14.29% for the previous three months.
After extensive analysis, including sourcing loan level data on a bimonthly basis going back to 10/31/2017, we are now able to calculate the amount of excess principal paid out since last October with a high degree of accuracy.
With this data, we have calculated two other prepayment figures
1. A CPR that corrects pool prepayments for paid excess, including adding back the excess to the trading balance and tracking it separately over time.
2. A loan level CPR, which utilizes the underlying loan balances in the calculation instead of the corrected pool balances.
In my previous issue, based on the relationship between the paid-off loan file, which shows the dollar amount of defaults and prepayments for the entire secondary market, and the pool data, which is a significant subset of the entire secondary market, I calculated an excess principal corrected October CPR of 8.68% and 8.96% for November.
However, with 4 months of loanlevel data now available to GLS, those numbers are now calculated to be: 12.21% for 10/2017, 12.45% for 11/2017, 11.50% for 12/2017 and 12.25% for 1/2018.
The big question is: Why the huge discrepancy?
Using the paid-off loan file should have produced an estimate with a high degree of accuracy, if you assume that the only change to how principal is being distributed is the release of the excess that has built up in the MRF according to the new SBA rules imposed in October, 2017.
I will go into more detail on this crucial question in the companion piece beginning on page 1.
Returning to the results, loanlevel prepayment speeds, which use loan balances instead of corrected pool balances, came in at 13.68% for 10/2017, 13.92% for 11/2017, 12.85% for 12/2017 and 13.66% for 1/2018.
You’ll notice that the loan level CPR is lower than the actual one (including excess), but higher than the corrected pool measure. This is because the corrected loan-level prepayments are the same, but the loan balances are much smaller than the pool balances. Since the respective balance figure is used in the denominator of the CPR calculation, a lower balance equates to a higher prepayment, all else being equal.
Because of the significance of the changes to how principal is being returned to investors, I have decided to track prepayments over the SBA fiscal year (October to September) instead of the calendar year that I have used in the past. So, for the first four months of FY 2018, the average prepayment speed for the actual CPR was 14.29%, for the corrected pool CPR it was 12.10% and for loan-level it was 13.53%.
As to the CDR for the corrected pool data, they came in at 2.22% for 10/2017, 1.38% for 11/2017, 1.21% for 12/2017 and 1.39% for 1/2018. For loan-level, they came in at 2.49%, 1.54%, 1.36% and 1.55%, respectively. Without knowing more about the makeup of the excess (i.e. default or voluntary prepayments), it is not possible to calculate the CDR for actual results.
CRRs for corrected pools came in at 9.99%, 11.07%, 10.29% and 10.86%. For loan-level, the results were: 11.19%, 12.38%, 11.49% and 12.11%.
As for the largest sector of the market, 20+ years to maturity, prepayment speeds, for actual came in at 14.58%, for corrected pool, 12.93% and 14.43% for loan-level.
Regarding our maturity buckets, prepayment speeds rose in six out of seven maturity categories. Please note that we have moved the tracking of fixed rate pools to this portion of the report.
Increases were seen, in the actual data by order of magnitude, in the fixed rate sector (+88% to CPR 33.11%), 13-16 (+64% to CPR 11.95%), 16-20 (+45% to CPR 17.02%), <8 (+39% to 22.29%), 20+ (+3% to CPR 14.58%) and 10-13 (+1% to CPR 12.59%).
The lone decrease was seen in 8-10 (-8% to CPR 14.32%).
Age bucket data can be found beginning on page 35, while the bucket data can be found on page 3.
Expect continued double-digit CPR readings by all three measures into the future as we change our perception of prepayment speeds today, and possibly in the past…
For further information on the terminology and concepts used in this article, please refer to the “Glossary and Definitions” at the end of the report.