Monday, September 26, 2011

The SBA and vade mecum

vade mecum

VAY/VAH-dee MEE/MAY-kuhm

A book for ready reference, such as a manual or guidebook.

From Latin vade mecum (go with me), from vadere (to go) + me (me) + cum (with).


The vade mecum for SBA loans is the SOP- Standard Operating Procedures.

SBA has once again re-written its SOP. These changes in the rules will be effective on October 1st.

One of the changes is that SBA lenders selling OREO are no longer limited to the liquidation value or their cost in the property.

Both SBA 504 and 7(a) loans offer high loan to value financing for owner-user real estate.
SBA LIBOR Base Rate September 2011 = 3.22%
SBA Fixed Base Rate September 2011 = 4.99%

504 Debenture Rate for September

The debenture rate is 2.85% but note rate is 2.89% and effective yield is only 4.709%.


The Federal Reserve doesn’t really have a vade mecum. Or does it?

With short term interest rates as low as they can go, the Federal Open Market Committee announced last week that it wanted to push down longer term rates by buying more longer term Treasuries.

The Fed would mimic a policy in 1961 known as “Operation Twist” for its goal of bending the yield curve.

While Fed staff called it Operation Nudge, it became known as Operation Twist, after Chubby Checker’s hit, The Twist.

The bond market began dancing almost immediately after the Fed announcement as the 30 year Treasury bond dropped 45 basis points last week, the most since the midst of the global financial crisis in December 2008.

The Fed also left unchanged its pledge to keep the benchmark interest rate near zero through at least mid-2013. The central bank has kept the target federal funds rate for overnight interbank loans in a range of zero to 0.25 percent since December 2008.

So what happens after 2013?

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years. Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC11- 0.55
DEC12- 0.53
DEC13- 0.79
DEC14- 1.50
DEC15- 2.17
DEC16- 2.64
DEC17- 2.94
DEC18- 3.10

What does all this mean?

I don’t know.

It would appear that interest rates will remain low for an extended period.


The vade mecum for anyone who likes baseball is

If you check it out, you will discover that only two players--Jose Bautista and Curtis Granderson--will hit 40 home runs this season. Three other players--Albert Pujols, Matt Kemp and Mark Teixeira--are close with a handful of games to play.

Way back when, it used to be impressive get 40 homers in a season. But then things got crazy and 40-home run hitters became commonplace.

Now, it's back to the future time. For the third time in the last four years, we're going to have only two guys break the 40-homer barrier.

Many people might think it’s because steroids are out of baseball.

It’s actually because Jose Lima died. In 2000, Lima gave up a National League record 48 home runs.

Now Cincinnati Reds pitcher Bronson Arroyo is challenging Lima Time.

Arroyo has served up 44 dingers this season.

Bronson’s 2.18 homers per nine innings is the second-highest mark ever among pitchers who qualified for the ERA title, according to Baseball Reference. Only the late Jose Lima (2.20 per nine in 2000) got taken deep more often.

Jose’s birthday by the way is this Friday, September 30th. He would have been 38 years old.

Friday, September 23, 2011

SBA 504 debenture rate

504 Debenture Rate for September

The debenture rate is 2.85% but note rate is 2.89% and effective yield is only 4.709%.

Wednesday, September 21, 2011

SBA 7(a) Rate Update



SBA LIBOR Base Rate September 2011 = 3.22%

SBA Fixed Base Rate September 2011 = 4.99%

Lenders charge up to 2.75% over these indices.

Monday, September 12, 2011

The SBA and estival



Relating to or occurring in summer.

Via French from Latin aestivus (of or relating to summer).

Summer is coming to an end and so is the government’s fiscal year.

The New Year looks good for SBA lending.

Total credit subsidy appropriations are proposed to go from $83 million in FY 2011 to $215 million in FY 2012. Of course, using the governments’ calculator the $215 million proposed for FY 2012 will be a DECREASE from the actual FY 2011 appropriation when considering the $505 million in Jobs Act money. As a result, funding is increasing while at the same time decreasing.

Our new SBA 7(a) loan servicing center is expanding.

We are now able to provide all SBA lender services (packaging, submission, documentation, closing, servicing, guaranty purchases and liquidation) at NO fixed cost to lenders.
SBA LIBOR Base Rate August 2011 = 3.19%
SBA Fixed Base Rate August 2011 = 5.41%
504 Debenture Rate for August
The debenture rate is 3.29% but note rate is 3.34% and effective yield is only 5.142%.
Note that the effective yield for debt refinance under the 504 program is slightly higher.
It is now 5.501%.


So where is the economy going?

Keep your eye what happens when the government has to borrow more money this week. The U.S. will offer $32 billion of three-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds in three daily auctions beginning September 12th.

The economy has never contracted with the difference between 10- and 30-year Treasury yields as wide as the current 1.34 percentage points, or 134 basis points, since the so-called long bond was first issued in 1977. The gap, which is more than double the 49 basis-point average of the past 20 years, has ranged from negative 56 to positive 41.9 at the start of the last five recessions, beginning in January 1980.

The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year, and yield curve inversions have foreshadowed each of the last seven recessions. One of the recessions predicted by the yield curve was the most recent one. The yield curve inverted in August 2006, a bit more than a year before the current recession started in December 2007.

Here is what the 30 year bond has been doing:

2001- 5.49
2002- 5.43
2003- ND
2004- ND
2005- ND
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61

What a minute, why no numbers for 2003, 2004, and 2005?

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

What does all this mean?

I don’t know.

Yields on 30 year bonds have fallen from this year’s high of 4.79 percent on February 9 down to about 3.27 percent, which is a historical low.

As might be expected, the flatter slope has increase the probability of recession. Using the yield curve to predict whether or not the economy will be in recession in the future, the Federal Reserve Bank of Cleveland estimates that the expected chance of the economy being in a recession next August at 4.8 percent, up noticeably from June and July’s 1.7 percent, albeit still a fairly low number. While their approach is somewhat pessimistic as regards the level of growth over the next year, it is quite optimistic about the recovery continuing.

The Federal Reserve’s Federal Open Market Committee meets on September 20 and 21. The next day is the last day of summer.



Estival joy ends in just ten days on September 22nd.

The next day, the first day of autumn, has equal hours of sunlight and daylight. The sun rises exactly due east and sets exactly due west that day. The days will continue to get shorter and shorter every day until the first day of winter which is the shortest day of the year.

This year ends in 110 days.

As the events of September 11th remind us and as echoed in the Book of James 4:14 “Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes.”