[Federal Register Volume 83, Number 160 (Friday, August 17, 2018)]
[Notices]
[Page 41139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17726]


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SMALL BUSINESS ADMINISTRATION


Changes to SBA Secondary Market Program

AGENCY: U.S. Small Business Administration.

ACTION: Notice of changes to Secondary Market Program.

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SUMMARY: The purpose of this Notice is to provide the public with 
notification of program changes to SBA's Secondary Market Loan Pooling 
Program. Specifically, SBA is increasing the minimum maturity ratio for 
both SBA Standard Pools and Weighted-Average Coupon (WAC) Pools by 
1.0%, to 95.0%. 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 will apply to SBA 7(a) loan pools with an issue date 
on or after October 1, 2018.

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, 202-205-3647, or [email protected].

SUPPLEMENTARY INFORMATION: The Secondary Market Improvements Act of 
1984 authorized SBA to guarantee 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.
    From time to time, SBA provides guidance 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.
    On October 1, 2017, SBA increased the minimum maturity ratio for 
both SBA Standard Pools and Weighted-Average Coupon (WAC) Pools to 
94.0%. Based on SBA's expectations as to the performance of future 
Pools, SBA has determined that, in order to support the costs 
associated with SBA's Secondary Market Loan Pooling Program, it is 
necessary to further 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. SBA does 
not expect a 1 percentage point increase in the minimum maturity ratio 
to have an adverse impact on either the program or the participants in 
the program. SBA has monitored Pools formed over the last 18 months and 
has observed that many existing Pools have a minimum maturity ratio of 
at least 95.0%.
    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 the primary 
driver in reducing the cost of SBA's timely payment guaranty on Pool 
Certificates. Therefore, effective October 1, 2018, 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 95% for Standard Pools and 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).
    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 Guide and all other appropriate SBA Secondary Market 
documents. As indicated above, this change will be effective for Pools 
with an issue date on or after October 1, 2018, and will modify any 
previous guidance regarding the minimum maturity ratio for Standard 
Pools or WAC Pools.

John A. Miller,
Deputy Associate Administrator, Office of Capital Access.
[FR Doc. 2018-17726 Filed 8-16-18; 8:45 am]
 BILLING CODE 8025-01-P