UNDERWRITING TIP: 504 Rates in a Turbulent Financial Market
In the face of recent financial shocks -stock market worries, the sub-prime mortgage market implosion - we've been getting nervous calls from some 504 customers. They've wondered how these issues might affect their rate when we fund their loan.
Though we always have to be cautious, we can say it's mostly good news: 504 rates remain stable.
A quick refresher on the drivers for 504 rates:
- We sell debentures to investors in long-term financial markets. For the most part, they use 10-year treasuries as a reliable yardstick for pricing our product.
- They do seek a bump over long-term rates to ensure against issues that could affect their long-run return, such as loan prepayments.
- Our financial representatives negotiate the rate with the investors, we sell the debentures, and then add servicing fees to the debenture rate to arrive at our effective rate to the borrower.
In July, the borrower rate was 6.79%. The 10-year Treasury rate on the sale date was 5.01% -- meaning there was a 178 basis-point difference between the two rates.
In August, we sold debentures on Aug. 7 - smack-dab in the middle of market volatility. The end rate to the borrower was 6.75%. The 10-year T-rate was 4.74%. The spread between the two rates went up to 201 basis points - a noticeable but not huge differential.
Here's a quick-and-dirty interpretation of the pricing:
- Investors were a bit nervous, and did negotiate a slightly higher premium on debentures than in July, or in most prior months.
- The Fed's action to control long-term rates had brought 10-year treasuries and comparable instruments down in price - so the "base rate" was lower.
- The end result was that 504 borrowers still got a heck of a deal.
The 504 industry watches rate conditions very closely, and monitors the factors that can drive our rates to anticipate future problems. If we could predict future rates we'd be in a more lucrative line of business - but we can draw several conclusions:
- The investment community still views our debentures as a good investment.
- As long as the Federal Reserve continues to keep long-term rates stable and low, our prices will be relatively stable.
- For the last year, our effective rates to borrowers have been under 7.0%. For a 20-year fixed-rate loan, that's a pretty good deal.
We'll continue to monitor the situation, and let you know if we see longer-term market shifts - but for now, we think you can anticipate that 504 loans will remain a solid financing mechanism for your borrowers.
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CURRENT 504 LOAN RATES
6.75%
fixed for 20 years for real estate projects, including acquisition, new construction and major renovation
6.85%
fixed for 10 years for heavy-duty equipment and machinery
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| LENDERS SPOTLIGHT: SELF-HELP JULY 2007 SBA 504 APPROVALS |
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Thanks for your partnership in boosting colume back up with some great deals in July! LENDER LOCATION
INDUSTRY
PROJECT
COST
Bank of America Kannapolis Cable & Wire Manufacturer $732,000
BB&T Durham Golf Course $1,700,000
BB&T Southern Pines Hotel $3,150,000
First Citizens High Point Import Car Dealership $595,000
HomeTrust Bank Swannanoa Childcare Center $340,000
TOTAL $6,517,000
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CONTACT US
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Call the Self-Help loan officer nearest you to discuss a project or learn more about how you can use an SBA 504 loan to help your small business customers.
Charlotte NC Region: Dale Harrold and Ralph Ansell, Self-Help, Great Aunt Stella Center, 926 Elizabeth Ave., Suite 302, Charlotte, NC 28204 * 800-394-7428
Sandhills NC Region: Allen Cofiori, Self-Help, 100 Hay St., Suite 300, Fayetteville, NC 28301 * 800-774-7966
Northeastern NC Region: Adelcio Lugo, Self-Help, 301 South Evans St., Suite 306, Greenville, NC 27858 * 800-893-9669
Southeastern NC Region: Louis Rogers, Self-Help, 272 N. Front St., Suite 300, Wilmington, NC 28401 * 877-559-4284
Triad NC Region: Anna Tefft, Self-Help, 122 N. Elm St., Suite 1015, Greensboro, NC 27401 and 500 West Fourth Street, Suite 200, Winston-Salem, NC 27101 * 800-269-7426
Central NC Region: Joe Osowski, Self-Help, 301 W. Main St., P.O. Box 3619, Durham, NC 27702 * 800-476-7428
Western NC Region: Tom Byers, Self-Help, 34 Wall St., Suite 704, Asheville, NC 28801 * 800-229-7428
Contact our SBA 504 Program Director, Jim Overton, at 919-956-4473.
Or contact our SBA 504 Marketing Officer, Jamie Miyares, at 919-956-4670. |
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