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November 19, 2013
By Bob Judge
Editor, CPR Report
In September prepays fell back to 7% after a one month visit above 8%. However, this reading represents the 5th month in a row of 7% or higher prepays.
This month saw double-digit percentage decreases in both defaults and voluntary prepayments, leading to a near CPR 2% decrease in overall speeds.
As for the detail, overall prepayments fell 20.58% to 7.01% from 8.83% in August.
In comparing prepayment speeds for the first nine months of 2013 to the same period in 2012, we see that this year is now running 29% ahead of last year, with YTD CPRs at 7.16% versus 5.57%.
As for the largest sector of the market, 20+ years to maturity, prepayment speeds fell by 24% to 6.13% from 8.11%.
Turning to the CPR breakdown, the default CPR fell by 16% to 1.77% from 2.10%. This level is the sixth lowest since September, 1999 when our records began.
Regarding voluntary prepayments, they remain range bound in the 5-6% area, coming in at 5.25% from 6.73% in August.
Preliminary data for next month suggests that voluntary prepayments will remain near this month’s levels and overall CPRs will stay near 7% for at least another month.
Turning to the default/ voluntary prepayment breakdown, the Voluntary Prepay CPR (green line) fell to 5.25% from 6.73%, a 22% decrease. While the VCPR fell below 6%, the Default CPR (red line) decreased by 16% to 1.77% from 2.10% the previous month.
Prepayment speeds fell in five out of six maturity categories. Decreases were seen, by order of magnitude, in the 20+ sector (-24% to CPR 6.13%), 10-13 (-22% to CPR 7.90%), 16-20 (-21% to CPR 10.19%), 13-16 (-12% to CPR 6.40%) and <8 (-6% to CPR 10.34%).
The lone increase was seen in 8-10, which rose by 55% to CPR 11.12%.
Three-quarters of the way through 2013 and the thesis remains the same. We are locked in a 7% to 8% range for prepayment speeds. As long as voluntary prepayments don’t begin rising again, we should remain here well into 2014.