Premiums on the Decline!
The Federal Register / Vol. 82, No. 137 indicated that “effective October 1, 2017, all guaranteed portions of loans in a Pool presented for settlement with SBA’s Fiscal Transfer Agent will be required to have a minimum maturity ratio of at least 94% for Standard Pools and WAC Pools.” It also stated that “based on SBA’s expectations as to future Pool performance, SBA has determined that, in order to lower the costs associated with SBA’s Secondary Market Loan Pooling Program, it is necessary to increase the minimum maturity ratio—in other words, to reduce the difference between the shortest and the longest remaining term of the guaranteed portions of loans in a Pool.”
What does all this mean to SBA lenders? It means that premiums on 25 year loans are not expected to be impacted much since these pools are typically filled with loans within the new minimum ratio. 10 year deals, on the other hand, will see a drop if 2-3 points. This will result in 1- 1.5 point drops (shared with SBA) in premium income to lenders since premiums are currently above 10 points. Additionally, any seasoning on 10 year loans will see premiums fall out very quickly (as little as 3-4 months). Our investors have indicated that we will see these changes beginning around the 1st week in September as they start working on October pools.
Keep this information in mind as you forecast premium income for the final quarter of 2017 and beyond.