82 FR 33197 - Notice of Changes to SBA Secondary Market Program

SMALL BUSINESS ADMINISTRATION

Federal Register Volume 82, Issue 137 (July 19, 2017)

The purpose of this Notice is to provide the public with notification of program changes to SBA's Secondary Market Loan Pooling Program. The changes described in this Notice are being made to ensure that there are sufficient funds to cover the estimated cost of the timely payment guaranty for newly formed SBA 7(a) loan pools. The changes in this Notice will be incorporated, as needed, into the SBA Secondary Market Program Guide, and all other appropriate SBA Secondary Market documents.

[Federal Register Volume 82, Number 137 (Wednesday, July 19, 2017)]
[Notices]
[Pages 33197-33198]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-15180]


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SMALL BUSINESS ADMINISTRATION


Notice of Changes to SBA Secondary Market Program

AGENCY:  U.S. Small Business Administration (``SBA'').

SUMMARY:  The purpose of this Notice is to provide the public with 
notification of program changes to SBA's Secondary Market Loan Pooling 
Program. The changes described in this Notice are being made to ensure 
that there are sufficient funds to cover the estimated cost of the 
timely payment guaranty for newly formed SBA 7(a) loan pools. The 
changes in this Notice will be incorporated, as needed, into the SBA 
Secondary Market Program Guide, and all other appropriate SBA Secondary 
Market documents.

DATES:  The changes in this Notice will apply to SBA 7(a) loan pools 
with an issue date on or after October 1, 2017.

ADDRESSES:  Address comments concerning this Notice to John M. Wade, 
Chief Secondary Market Division, U.S. Small Business Administration, 
409 3rd Street SW., Washington, DC 20416, or [email protected].

FOR FURTHER INFORMATION CONTACT:  John M. Wade, Chief, Secondary Market 
Division, U.S. Small Business Administration, 409 3rd Street SW., 
Washington, DC 20416, or [email protected].

SUPPLEMENTARY INFORMATION:  The Secondary Market Improvements Act of 
1984 authorized SBA to guaranty the timely payment of principal and 
interest on Pool Certificates. A Pool Certificate represents a 
fractional undivided interest in a ``Pool,'' which is an aggregation of 
SBA guaranteed portions of loans made by SBA Lenders under section 7(a) 
of the Small Business Act, 15 U.S.C. 636(a). In order to support the 
timely payment guaranty requirement, SBA established the Master Reserve 
Fund (``MRF''), which serves as a mechanism to cover the cost of SBA's 
timely payment guaranty. Borrower payments on the guaranteed portions 
of pooled loans, as well as SBA guaranty payments on defaulted pooled 
loans, are deposited into the MRF. Funds are held in the MRF until 
distributions are made to investors (``Registered Holders'') of Pool 
Certificates. The interest earned on the borrower payments and the SBA 
guaranty payments deposited into the MRF supports the timely payments 
made to Registered Holders.
    To facilitate the formation of SBA loan Pools and to enhance the 
marketability of the SBA Secondary Market (as defined in 13 CFR 
120.601), SBA allows loans with different maturity dates to be placed 
in the same Pool. From time to time, SBA provides instruction to SBA 
Pool Assemblers on the required loan and pool characteristics necessary 
to form a Pool. These characteristics include, among other things, the 
minimum number of guaranteed portions of loans required to form a Pool, 
the allowable difference between the highest and lowest gross and net 
note rates of the guaranteed portions of loans in a Pool, and the 
minimum maturity ratio of the guaranteed portions of loans in a Pool. 
The minimum maturity ratio is equal to the ratio of the shortest and 
the longest remaining term to maturity of the guaranteed portions of 
loans in a Pool.
    In November of 2008, SBA published changes to the regulations 
governing SBA's Secondary Market to allow SBA Pool Assemblers to form 
and initiate the sale of Weighted Average Coupon (WAC) Pools. See 73 FR 
67099, November 13, 2008. A WAC Pool is a Pool where the interest rate 
payable to the Registered Holder is equal to the Dollar-Weighted 
Average Net Rate of the Pool (as defined in 13 CFR 120.600(l)). All 
other Pools formed by SBA Pool Assemblers are considered Standard 
Pools. The minimum maturity ratio for Standard Pools and WAC Pools is 
currently 80% and 76%, respectively. The minimum maturity ratio for 
Standard Pools was last adjusted by SBA in 2005. The minimum maturity 
ratio for WAC Pools was established by SBA in 2008 and has remained 
unchanged.

[[Page 33198]]

    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. A higher minimum maturity ratio will 
decrease the difference between the amortization rates of the 
guaranteed portions of loans in a Pool. This will cause the cash flows 
from the guaranteed portions of loans in the Pool to be more 
homogenous, and will more closely match the amortization rate of the 
Pool Certificate. This is an important driver in reducing the cost of 
SBA's timely payment guaranty on Pool Certificates.
    Therefore, 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. SBA has monitored Pools formed over 
the last 6 months, and has observed that many existing Pools have a 
minimum maturity ratio of at least 94%.
    SBA will continue to monitor loan and pool characteristics and will 
provide notification of additional changes as necessary. It is 
important to note that there is no change to SBA's obligation to honor 
its guaranty of the amounts owed to Registered Holders of Pool 
Certificates and that such guaranty continues to be backed by the full 
faith and credit of the United States.
    This program change will be incorporated as necessary into SBA's 
Secondary Market documents. As indicated above, this change will be 
effective for Pools with an issue date on or after October 1, 2017, and 
will modify any previous description or guidance regarding the minimum 
maturity ratio for Standard Pools or WAC Pools. SBA is making this 
change pursuant to Section 5(g)(2) of the Small Business Act, 15 U.S.C. 
634 (g)(2).

    Authority:  15 U.S.C. 634 (g)(2).

William M. Manger
Associate Administrator Office of Capital Access.
[FR Doc. 2017-15180 Filed 7-18-17; 8:45 am]
 BILLING CODE 8025-01-P