CPR Report: SBA 7(a) Prepays Stay Below 7%

June 18, 2014

By Bob Judge
Editor, CPR Report


In April, prepays remained below 7% for the second consecutive month, having decreased by 1% from March.

Defaults fell to the 4th lowest reading since 1999 and stayed below 2% for the eighth month in a row. This continues the longest such stretch in our database, which goes back to 1999.

As for the detail, overall prepayments fell 1% to 6.65% from 6.70% in March. In comparing prepayment speeds for the first four months of 2014 to the same period in 2013, we see that this year is running 11.21% ahead of last year, 7.42% versus 6.67%.

As for the largest sector of the market, 20+ years to maturity, prepayment speeds rose by 1% to 6.42% from 6.37% in March.

Turning to the CPR breakdown, the default CPR fell by 29% to 1.41% while the voluntary prepayment CPR rose by 11% to 5.25%. After one month below VCPR 5%, we are back into the 5% to 6% range.

Preliminary data for next month suggests that prepayments will surge back above 8%, after two months of sub-7% readings.

Turning to the default/voluntary prepayment breakdown, the Voluntary Prepay CPR (green line) rose to 5.25% from 4.73%, an 11% increase.

While the VCPR rose back above 5%, the Default CPR (red line) decreased by 29% to 1.41% from 1.98% the previous month.

Prepayment speeds fell in three out of six maturity categories.

Decreases were seen, by order of magnitude, in the 16-20 year sector (-20% to CPR 3.63%), 8-10 (-11% to CPR 7.26%) and 10-13 (-10% to CPR 7.26%).

Increases were seen, also by order of magnitude, in the <8 sector (+76% to CPR 11.09%), 13-16 (+71% to CPR 9.44%) and 20+ (+1% to CPR 6.42%).

After two consecutive months of sub-7% readings, we expect prepays to bounce back into the 7% to 8% range, where we have spent most of the past 12 months.

In light of the past 2 months of relatively low prepayments, our expectation for 2014 remains unchanged. We continue to see prepays for 2014 about 5% to 10% higher than last year.

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.

Read the CPR Report Volume 8, Issue #5