Monday, October 1, 2018

The SBA and PROdigious


1. Remarkable in size, quantity, strength, etc.
2. Marvelous.
3. Abnormal; monstrous.

From Latin prodigiosus (marvelous, portentous), from prodigium (portent).


Prodigious use of loan brokers has always been a concern with SBA.  One of their lender flag metrics is what they call loan agent rate.  One of the ways they track this is with SBA form 159.

A new SBA form 159 was recently released.  SBA expects lenders and CDCs to begin transitioning to the new form immediately and will require its use for all forms completed on or after November 1, 2018.  One of the major changes is that the form has been redesigned to include all identifying information and information about fees paid in one location.   The new Form 159 requires that all information be completed on the form before the Applicant signs.

These requirements are not new and have been included in the CFR and SOP for some time.

One thing that will be changing is the requirement related to the evaluation of personal liquid assets of owners of 20% or more of a loan applicant as part of the Credit Elsewhere Determination.  The Federal Register just published for comment several substantial proposed changes.  One of those changes intends to add a new regulation to require certain owners of the small business Applicant to inject excess liquid assets into the business to reduce the amount of SBA-guaranteed funds that otherwise would be needed.  Prodigiously rich borrowers will be affected.





SBA 504 Loan Debenture Rate for September

For 20 year debentures, the debenture rate is only 3.53% but note rate is 3.58% and the effective yield is 5.250%.

For 25 year debentures, the debenture rate is only 3.65% but note rate is 3.69% and the effective yield is 5.290%.


Prodigious increases in interest rates are the probative question.

The Federal Reserve just increased interest rates for the third time this year with some presentiment that it would increase them again in December.

Rates are now at their highest level since the fall of 2008.  Fall could be construed to either mean autumn or collapse.

The Fed however is not being procrustean about the pace of future rate increases.

With some probity in their statement on monetary policy, the Fed removed language that said “the stance of monetary policy remains accommodative.”  Policy is accommodative, neutral or restrictive.

The Fed continued to project three rate increases next year and one more in 2020. This would bring rates into what is considered restrictive territory — more than enough to slow the economy.

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:

DEC18- 2.67
DEC19- 3.14
DEC20- 3.18
DEC21- 3.06
DEC22- 3.13
DEC23- 3.17
DEC24- 3.23

What does all this mean?

I don’t know.

The price difference between the December 2019 Eurodollar futures contract  and the December 2018 Eurodollar contract, an indication of how many rate hikes money-market traders expect next year, jumped to 50 basis points, or two full hikes. Before last month, the spread between those two contracts bounced between 30 and 40 basis points, implying investors’ forecasts were split between one and two rate hikes in 2019.

There appears to be splenetic presentiment among Eurodollar market participants and the Federal Reserve Open Market Committee over an enervation of prodigiously recrudescent interest rates.


“Prodigious” doesn’t just mean big. It means really, really big. And its overuse to mean merely large is bordering on the “prodigious.”  The second definition of “prodigious” in Webster’s New World College Dictionary, is of great size, power, extent, etc.; enormous; huge.” The third definition in Merriam-Webster is “extraordinary in bulk, quantity, or degree.”

Things that are “prodigious” are also “wonderful” and “amazing,” definitions in both Webster’s New World and Merriam Webster.  Those definitions are actually older: The Oxford English Dictionary traces the “wonder” usage to about 1497, but the “enormous” usage to 1601.

But the original definition of “prodigious,” now obscure, was “portentous”: relating to an omen, probably a bad one. We are still using “portentous” in that way, though it’s occasionally incorrectly spelled and pronounced “portentious.

If you’re just trying to impress people, don’t use “prodigious” “portentously.”

If all of this is making your head spin or even if you don’t care, go ahead and take this Monday off.  According to the Federal Reserve, here are  the remaining holidays for 2018:

Columbus Day October 8
Veterans Day November 11
Thanksgiving Day November 22
Christmas Day December 25

No comments:

Post a Comment