82 FR 48144 - Changes to SBA Secondary Market Program

SMALL BUSINESS ADMINISTRATION

Federal Register Volume 82, Issue 198 (October 16, 2017)

The purpose of this Notice is to provide the public with notification of a procedural change in SBA's Secondary Market Pooling program. This change involves the pass through of principal payments to Registered Holders of Pool Certificates resulting from Pool loan prepayments.

[Federal Register Volume 82, Number 198 (Monday, October 16, 2017)]
[Notices]
[Page 48144]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-22466]


=======================================================================
-----------------------------------------------------------------------

SMALL BUSINESS ADMINISTRATION


Changes to SBA Secondary Market Program

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

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: The purpose of this Notice is to provide the public with 
notification of a procedural change in SBA's Secondary Market Pooling 
program. This change involves the pass through of principal payments to 
Registered Holders of Pool Certificates resulting from Pool loan 
prepayments.

DATES: The change referenced in this Notice affects all outstanding 
Pools issued between October 1, 2004, and on or about September 1, 
2017. The change will be incorporated into payments made to Registered 
Holders of Pool Certificates before the end of the calendar year.

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 on Pool Certificates.
    Pool payments to Registered Holders of Pool Certificates are made 
monthly and consist of scheduled payments of pool principal and 
interest. The payments may also include a return of pool principal from 
full or partial prepayments of pool loans prior to the Pool maturity 
date. Principal from these prepayments are passed through to Registered 
Holders of Pool Certificates, but the amounts may vary based on 
amortization excess associated with the prepaid loan.
    Amortization excess represents that portion of the outstanding 
principal balance of a Pool allocated to a particular pool loan 
compared to the actual loan principal balance outstanding at the time 
the loan is prepaid. Amortization excess may include differences 
attributed to principal prepayments on a pool loan that is less than or 
equal to 20% of the outstanding principal balance. Borrower payments of 
loan principal made up to the date of prepayment are based on the 
amortization schedule of the borrower's Note, but paid to Registered 
Holders of Pool Certificates based on the amortization schedule of the 
Pool. This variance comes from differences in interest rates and 
maturity dates of the pool loan compared with the Pool Certificate.
    On September 21, 2004, SBA issued Notice of a Change in the SBA 
Secondary Market Program (and referenced herein as the ``2004 
Notice''). 69 FR 56472. This 2004 Notice described program changes made 
to all Pools formed on or after October 1, 2004 including the 
disposition of amortization excess. Prior to October 1, 2004, SBA 
spread the amortization excess from prepaid loans over the remaining 
life of the Pool. In the 2004 Notice, SBA revised the program to pass 
through amortization excess once a pool loan is prepaid. In certain 
circumstances, however, amortization excess resulted in a reduction in 
the amount of a principal passed through to Registered Holders of Pool 
Certificates, with the retained principal remaining in the MRF to be 
paid out through scheduled principal payments until the Pool matures, 
or as all pool loans are fully paid.
    In order to improve the efficiency of the program, SBA is 
implementing a procedural change that will adjust the timing of certain 
principal distributions from the MRF. For Pools formed between October 
1, 2004 and on or about September 1, 2017 with pool loans remaining, 
SBA will reallocate the outstanding Pool balances pro rata across the 
remaining pool loan principal within a Pool. When a pool loan 
subsequently prepays in full, payments to Registered Holders of Pool 
Certificates may include retained principal in addition to the 
scheduled payments of pool principal, interest and related prepayments. 
This change will be incorporated, as needed, into the SBA Secondary 
Market Program Guide, and all other appropriate SBA Secondary Market 
materials.
    It is important to note that there is no change to SBA's obligation 
to honor its guaranty of the amount 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.

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

William M. Manger,
Associate Administrator, Office of Capital Access.
[FR Doc. 2017-22466 Filed 10-13-17; 8:45 am]
 BILLING CODE 8025-01-P