Agency CMBS Market Watch

Transcription

1 Fixed Income Research FOR INSTITUTIONAL CLIENT USE ONLY Agency CMBS Market Watch Securitized Products Americas Research Analysts Serif Ustun Roger Lehman Sylvain Jousseaume Links for Agency CMBS reports: November 213 Compendium Agency CMBS Market Primer Agency CMBS ending 213 on a strong note Agency CMBS spreads continue to be rangebound, across the different subsectors and maturities. The ten-year A2 s initially widened slightly, as investors took gains, but spreads subsequently firmed up, with no new deals pricing in December. We also note that GNRs, which performed considerably worse in the second half of this year, due to extension concerns, have joined the rally. This is partly due to market participants adjusting their speed assumptions upward as well as GNR bonds offering good relative value, even in extension scenarios, compared to Freddie K-deal and Fannie GeMS bonds. The pricing spread for the latest Freddie Mac K-Deal, K35, was 55 bp over swaps for the A2 class, which was 3 bp tighter than the previous deal. K-Deal spreads weathered the volatility in 213 much better than the new issue conduit CMBS deals, widening only 31 bp, from S+44 bp to S+75 bp, by mid-year. Fannie Mae GeMS moved in tandem with K-Deals. In contrast, new issue conduit CMBS spreads for super-seniors widened 56 bp (from S+72 to S+128 bp), during the same period. Trading activity was robust in November, with an average daily volume of $632 million, according to data from the New York Fed. This was comparable to the levels before the Fed started discussing tapering its bond purchases, in late May. Primary dealer net positions currently total about $8.2 billion. Agency CMBS issuance in 213, across the major securitization programs (GNRs, K-Deals, DUS REMICs/Megas and SBA/SBIC debentures), looks to end up at $71 billion, 12% higher than last year s volume. For next year, however, we expect the total issuance to decline nearly 15% (to about $6 billion). Our forecast is based on several observations and assumptions. For project loans, we think the loan production volumes will return to levels seen between 21 and mid-212, approximately $1.3 billion per month, as the prepayment wave is tempered by rising interest rates and modest increases in property values. This would imply a 2% to 25% decline in GNR volumes, from nearly $23 billion in 213 to $18 billion next year. Fannie Mae and Freddie Mac new multifamily loan production in 213 had been reduced by 1%, as a part of the FHFA mandate. FHFA has been considering alternative ways to further reduce the GSEs' multifamily businesses in 214 and is evaluating public comments, submitted in October. For the time being, we assume the new set of restrictions could lead to another 1% decline in new loan production, for each of the GSEs. We note that Freddie Mac estimates that the K-Deal program will total about $25 billion, across 15 to 2 K-Deals (depending upon FHFA s guidance for the next year), which is consistent with our forecast. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 Table of Contents Agency CMBS Monitor 4 Exhibit 1: Agency CMBS spreads table 4 Exhibit 2: GNR spreads 4 Exhibit 3: Fannie Mae ACES (FNA) spreads 4 Exhibit 4: Freddie Mac K-Deal spreads 4 Exhibit 5: SBA and SBIC spreads 4 Exhibit 6: Historical issuance table 5 Exhibit 7: Outstanding Agency CMBS: $343 billion 5 Exhibit 8: GNR issuance 5 Exhibit 9: Fannie Mae ACES (FNA) issuance 5 Exhibit 1: Freddie Mac K-Deal issuance 5 Multifamily Fundamentals 6 Exhibit 11: Multifamily vacancies and rent growth 6 Exhibit 12: Multifamily completions 6 Exhibit 13: Multifamily building permits 7 Exhibit 14: Multifamily building starts 7 Exhibit 15: Multifamily vacancy rates and homeownership 7 Ginnie Mae Project Loans 8 Exhibit 16: ly prepayment activity and prepay eligible universe 8 Exhibit 17: Voluntary prepay speeds 8 Exhibit 18: Multifamily prices vs. prepayment speeds 9 Exhibit 19: New issue WAC vs. prepayment speeds 9 Exhibit 2: Prepay speeds: Cohorts 24 to 27 9 Exhibit 21: Prepay speeds: Cohorts 28 to Exhibit 22: Project loan universe by cohort (loan origination year) 1 Exhibit 23: Prepay speeds by section: Construction loans 1 Exhibit 24: Prepay speeds by section: Refi loans 1 Exhibit 25: Construction project loan universe by cohort 11 Exhibit 26: Refi project loan universe by cohort (loan origination year) 11 Exhibit 27: Project loan defaults and CDRs (pre-212 originations) 12 Exhibit 28: Delinquencies: Project loan vs. multifamily CMBS 12 Exhibit 29: Project loan defaults by cohort 12 Freddie Mac K-Deals 13 Exhibit 3: New issue K-Deals 13 Exhibit 31: Delinquent and/or specially serviced loans 14 Exhibit 32: Top 15 largest loans on watchlist 15 Fannie Mae DUS 16 Exhibit 33: New issue FNA deals 16 Exhibit 34: Prepayment history for post-29 FNA deals 16 Agency CMBS Market Watch 2

3 SBA 54/CDC 18 Exhibit 35: New issue SBA 54/CDC deals (2-year debentures) 18 Exhibit 36: Voluntary & Involuntary prepay speeds 18 Exhibit 37: SBA 54 payment speeds by cohort 19 SBIC Debentures and Participating Securities 2 Exhibit 38: SBIC Debentures payment speeds 2 Exhibit 39: SBIC Participating Securities (PSPC) payment speeds 2 Agency CMBS Summary Matrix 21 Agency CMBS Market Watch 3

4 Agency CMBS Monitor Exhibit 1: Agency CMBS spreads table (spread to swap) As of MoM Last 3 mo Last 6 mo Sector Avg Life 12/11/213 Δ bps Δ bps Tight/Wide Δ bps Tight/Wide Average Range Average Range GNR 5yr / / / / 11 1yr / / / / 12 IO / / / / 55 FNA 5yr / / / / 75 1yr / / / / 85 IO / / / / 415 FREMF 5yr / / / / 75 7yr / / / 58 na na 1yr / / / / 85 IO / / / / 415 SBA 54 1yr / / / / 14 SBIC 1yr / / / / 15 CMBS 2. 5yr / / / / 235 1yr / / / / 235 Source: Credit Suisse Exhibit 2: GNR spreads bp GNR 1yr GNR 5yr /12 3/13 6/13 9/13 12/13 Source: Credit Suisse Exhibit 3: Fannie Mae ACES (FNA) spreads bp FNA 1yr FNA 5yr 1 12/12 3/13 6/13 9/13 12/13 Source: Credit Suisse Exhibit 4: Freddie Mac K-Deal spreads bp /12 3/13 6/13 9/13 12/13 Source: Credit Suisse FREMF 1yr FREMF 7yr FREMF 5yr Exhibit 5: SBA and SBIC spreads bp /12 3/13 6/13 9/13 12/13 Source: Credit Suisse SBIC1yr SBAP 54 1yr Agency CMBS Market Watch 4

5 Exhibit 6: Historical issuance table ($billion) Ginnie Mae Project Loans Fannie Mae DUS MBS Freddie Mac Small Business Administration Vintage /Cohort GNR REMICs GN MBS (Sec 242 Hospital) GN MBS (other) FNA REMICs (ACES) FN DUS Megas FN DUS MBS (other) K-Deals FREMF & FHMS SBA 7(a) Pools SBAP 54 CDC SBIC Debentures 213 ytd Standalone MBS pools which have not been securitized in multiple-pool deals (i.e., in REMICs and/or Megas) To avoid double counting, we show deal securitization year (i.e., vintage) for pools securitized in multiple-pool deals regardless of actual pool issuance year (i.e., cohort) Source: Credit Suisse, Ginnie Mae, Fannie Mae, Freddie Mac, the BLOOMBERG PROFESSIONAL service, CMAlert Total Agency CMBS Exhibit 7: Outstanding Agency CMBS: $343 billion GN Project Loan REMICs $67b $2b GN MBS (other) FNA ACES $34b $82b DUS MBS (other) FN DUS Mega $14b FREMF K-Deals $7b SBIC $6b $27b $21b SBA 54/CDC Standalone pools (i.e., not been securitized in multiple-pool deals) Source: Credit Suisse, Ginnie Mae, Fannie Mae, Freddie Mac, the BLOOMBERG PROFESSIONAL service SBA 7(a) Exhibit 8: GNR issuance $bn Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service, CMAlert Q4 Q3 Q2 Q1 Exhibit 9: Fannie Mae ACES (FNA) issuance Exhibit 1: Freddie Mac K-Deal issuance $bn Q4 Q3 Q2 Q $bn Q4 Q3 Q2 Q Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service, CMAlert Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service, CMAlert Agency CMBS Market Watch 5

6 27 Q3 28 Q1 28 Q3 29 Q1 29 Q3 21 Q1 21 Q3 211 Q1 211 Q3 212 Q1 212 Q3 213 Q1 213 Q Chg in Rents 17 December 213 Multifamily Fundamentals Multifamily sector fundamentals continued to register solid improvements in the third quarter. It has been by far the best performing segment in the commercial real estate sector, coming out of the recent real estate downturn. Vacancies have been declining and rents increasing, materially and consistently, since early 21, albeit to varying degrees. During the third quarter of 213, the vacancy rate dropped another 1 bp to 4.2%. Vacancies have been declining (or remained stable) for 15 consecutive quarters now; however, the pace of improvement has slowed. That said, the multifamily vacancy rate currently sits at the tightest level since 3Q 21. Vacancies are down by 5 bp since last year and by 38 bp since the cyclical peak in late 29. Effective rents increased by 1.% on the quarter, which brought the year-over-year increase to 2.9% (see Exhibit 11). Rent growth has now accelerated for the second consecutive quarter, reversing its course of smaller increases since mid-212. There has been a cumulative increase in rents of 11.3%, since the local low, four years ago. Exhibit 11: Multifamily vacancies and rent growth QoQ Rent Change MF Vacancies 2.% 9% 1.5% 8% 1.% 7% Exhibit 12: Multifamily completions 18K 15K 12K Q4 Q3 Q2 Q1 213 REIS estimate: 125K.5%.% -.5% -1.% -1.5% 6% 5% 4% 3% 2% Vac Rate 9K 6K 3K K Source: Credit Suisse, REIS Source: Credit Suisse, REIS In addition to the historically low level of vacancies, other factors are at play, helping vacancy rates to improve. REIS notes that the stalling vacancy rate is more a function of increased completions (supply driven) rather than a decline in demand. Net absorption for the third quarter was 4k units. A total of 33k units were delivered during the quarter for the multifamily markets, tracked by REIS. Close to 45k units are expected to be completed for the rest of the year (Exhibit 12). This is consistent with data reported by the US Census Bureau, at the national level. The Census Bureau data show that permits and starts, for 5+ unit buildings, have been trending higher and have more than doubled since the recession ended. Both series are now near their respective historical averages, but they seem to have started to level off (Exhibits 13 and 14). That said, we think the forecasted increase in multifamily supply is manageable given how undersupplied the sector has been, in recent years, and should not lead to a spike in vacancies. Agency CMBS Market Watch 6

7 27 Q2 27 Q3 27 Q4 28 Q1 28 Q2 28 Q3 28 Q4 29 Q1 29 Q2 29 Q3 29 Q4 21 Q1 21 Q2 21 Q3 21 Q4 211 Q1 211 Q2 211 Q3 211 Q4 212 Q1 212 Q2 212 Q3 212 Q4 213 Q1 213 Q December 213 Exhibit 13: Multifamily building permits 6K 5K 4K Exhibit 14: Multifamily building starts 45K 4K 35K 3K 3K 2K Building permits (5+units) 25K 2K 15K Starts (5+units) 1K K 12 per. Mov. Avg. (Building permits (5+units)) 1K 5K K 12 per. Mov. Avg. (Starts (5+units)) Source: Credit Suisse, US Census Bureau Source: Credit Suisse, REIS Multifamily markets have been the beneficiary of the ongoing weakness in the single-family housing market as well as robust funding alternatives from the GSEs. In addition to the increased difficulty in getting a residential mortgage, uncertainty about economic growth and housing prices still leads many to favor renting over buying. Exhibit 15 shows that homeownership continues to decline, and this is another positive for the multifamily sector. That said, housing prices have shown strong gains over the past year and this too should also serve to diminish one of the positives recently propelling the multifamily market. Exhibit 15: Multifamily vacancy rates and homeownership 7% Homeownership Rate (LHS) Multifamily Vacancy Rate (RHS) 69% 68% 67% 66% 65% 64% 9% 8% 7% 6% 5% 4% 3% 63% 2% Source: Credit Suisse, REIS, US Census Bureau, the BLOOMBERG PROFESSIONAL service Agency CMBS Market Watch 7

8 Ginnie Mae Project Loans Prepayment activity was up, slightly, in November after declining four consecutive months. A total of 85 project loans ($63 million) paid off last month. This represents 2.2% of the $28 billion prepay-eligible universe for cohorts and before (Exhibit 16). We continue to monitor the recent cohorts separately (212 and 213), however, project loan borrowers rarely prepay within the first two years. Our headline prepayment speed metric is down by 37 bp to 26% CPR, on a threemonth running basis, reflecting the sharp slowdown in prepayments in the second half of 213. In comparison, prepay speeds were 41% in 213 H1 as shown in Exhibit 17. The 12-month CPR is also declining (down 115 bp to 37%) but at a slower pace since this metric reflects the cumulative prepayments within the last twelve months. The frantic prepayment activity since 212 H2 was driven by record low interest rates and a run-up in property values, which collectively resulted in a record $17.1 billion prepayments since July 212. That said, the benchmark ten-year interest rate is up by almost a percentage point in 213 H2 and multifamily property price increases are dwindling. Accordingly, we expect the overall three-month CPRs to stabilize around the 2% to 25% range in the upcoming months. Exhibit 16: ly prepayment activity and prepay eligible universe ($million) 1,6 1,4 1,2 1, Prepayments (left axis) Exited Lockout (all cohorts) Exited Lockout (pre- 212 cohorts) ($billion) 5 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD Exhibit 17: Voluntary prepay speeds 45 12mo CPR 3mo CPR /7 11/8 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD Multifamily prices are up nearly 67% from their low point in late 29, according to Moody s CPPI index. We note that prepayments move in tandem with property values as borrowers often prepay in order to take out equity (see Exhibit 18 below). However, the recent price index readings indicate a slower pace of appreciation of multifamily properties. This is most likely caused by rising interest rates negatively impacting transaction volumes and valuations. Property fundamentals for multifamily and healthcare sectors, both from supply and demand sides, are still favorable and we expect the property values to further increase in 214, albeit at a diminished rate. Therefore, we do not expect prepayments to contract severely, especially for seasoned project loans. 1 The prepayment eligible universe is expanding quickly because of the shorter or no lockout periods embedded in newly issued refi project loans. Therefore, we exclude cohorts less than two years old to measure the overall speeds. Agency CMBS Market Watch 8

9 Exhibit 18: Multifamily prices vs. prepayment speeds CPR (%) Index (Dec 2 = 1) mo CPR Multifamily Price Index /7 11/8 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD, Moody s Exhibit 19: New issue WAC vs. prepayment speeds CPR (%) mo CPR WAC (%) New 5 Issue 1. WAC 1yr UST. 11/7 11/8 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD Cohort prepayment speeds vary due to differences in seasoning (i.e., loan age) as well as individual cohort characteristics (average coupon, share of construction versus refi loans, overall valuations during the real estate cycle). However, a rising tide lifts all boats; prepayments had accelerated in 212 H2, regardless of seasoning and cohort WAC. By the same token, cohort CPRs are now slowing down, across the board, with the exception of the 26 cohort. The fastest prepaying cohort is 29 (5.6% original WAC), with a three-month running CPR now at 51% and the 12-month running CPR at 57% (Exhibit 21). We show a summary of each cohort s performance metrics in Exhibit 22. Exhibit 2: Prepay speeds: Cohorts 24 to month running CPR (%) /9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD Exhibit 21: Prepay speeds: Cohorts 28 to month running CPR (%) /11 5/12 11/12 5/13 11/13 Source: Credit Suisse, Ginnie Mae, HUD Agency CMBS Market Watch 9

10 Exhibit 22: Project loan universe by cohort (loan origination year) Cohort Original WAC 3mo CPR 12mo CPR Outstandi ng ($mn) Prepay Eligible ($mn) Prepaid in Nov 13 ($mn) Default in Nov 13 ($mn) Prepaid Total ($mn) Default Total ($mn) Pre ,932 1, ,756 6, ,474 1, , ,662 1, , ,69 1, , ,865 1, , ,545 1, , , , ,592 2, , ,378 7, , ,56 9, , and earlier avg/total na ,77 28, ,64 9, ,613 9, * 16,15 8,52 *Project loan coupons are above 4.% in 213 H2 Source: Credit Suisse, Ginnie Mae, HUD Construction loans are paying faster than refi project loans. These loans are generally originated with higher rates, in comparison to the refi loans, because there is more uncertainty during the construction and initial lease-up phases. Therefore, construction loan borrowers are more likely to prepay upon exiting lockout as they can refinance their stabilized projects at a lower interest rate. Indeed, construction project loans (i.e., mostly Sec 221d4 multifamily and Sec 232 healthcare loans) are now prepaying at a 62% CPR, compared to refi loans (Sec 223a7 and 223f) at a 15% CPR (Exhibits 23 to 26). In addition, there is no sign of a slowdown yet for the construction loan prepayments. Most of these construction loan prepayments are coming from seasoned cohorts (29 and before) with an average WAC of 6.1%. We note that the majority of construction loans, from 21 and later cohorts, are still in the lockout period. Exhibit 23: Prepay speeds by section: Construction loans Exhibit 24: Prepay speeds by section: Refi loans mo CPR 3mo CPR mo CPR 3mo CPR /7 11/8 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD 11/7 11/8 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD Agency CMBS Market Watch 1

11 Exhibit 25: Construction project loan universe by cohort Cohort Original WAC 3mo CPR 12mo CPR Outstanding ($mn) Prepay Eligible ($mn) Prepaid Total ($mn) Default Total ($mn) , , , , ,273 1, , to 211 Avg/Total na ,231 4,282 8,988 2, , * * Construction project loan coupons are above 4.6% in 213 H2 Source: Credit Suisse, Ginnie Mae, HUD Exhibit 26: Refi project loan universe by cohort (loan origination year) Cohort Original WAC 3mo CPR 12mo CPR Outstanding ($mn) Prepay Eligible ($mn) Prepaid Total ($mn) Default Total ($mn) , , , ,96 1,72 1, ,473 1,356 1, , ,959 1,92 2, ,14 6,73 3, ,242 8, to 211 Avg/Total na ,544 22,226 16, ,998 9, * 15,179 8,365 *Project loan coupons are above 4.% in 213 H2 Source: Credit Suisse, Ginnie Mae, HUD Agency CMBS Market Watch 11

12 There are relatively few credit issues lately. Out of the nearly 11, project loans outstanding, only three defaulted in November, with a total balance of $26 million. Overall defaults rates have remained between 1.% and 2.%, on an annualized basis, in recent years, and came in at a 1.% CDR as of November. The delinquency rate is also low, at 1.%, compared to private label CMBS multifamily delinquencies at 11.9%. Exhibit 27: Project loan defaults and CDRs (pre-212 originations) $million Defaults CDR CDR Source: Credit Suisse, Ginnie Mae, HUD Exhibit 28: Delinquencies: Project loan vs. multifamily CMBS Dlq rate 18% 16% 14% 12% 1% 8% CMBS Multifamily 6+day rate 11.9% 6% Project loan 4% 6+day rate 2% 1.% % 11/7 11/8 11/9 11/1 11/11 11/12 11/13 Source: Credit Suisse, Ginnie Mae, HUD, Trepp Exhibit 29: Project loan defaults by cohort Delinquencies and defaults are shown as a percentage of original cohort balance Cohort 6+day Dlq Cum. Defaults Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1 Year PLD Implied Source: Credit Suisse, Ginnie Mae, HUD Agency CMBS Market Watch 12

13 Freddie Mac K-Deals The nineteenth Freddie Mac K-Deal this year, K35, was securitized in the last week of November. The ten-year A2 class priced at 55 bp over swaps, which was 3 bp tighter than the previous deal and the five-year A1 class was at S+55 bp (1 bp tighter). K-Deal spreads weathered the volatility in 213 much better than the new issue conduit CMBS deals, widening only 31 bp, from S+44 bp to S+75 bp, by mid-year. In contrast, new issue private label conduit CMBS spreads for super-seniors widened 56 bp (from S+72 to S+128 bp) during the same period. The total K-Deal issuance for 213 reached $28. billion, up 32% from last year s issuance of $21.2 billion (17 deals). During the same period last year, 15 deals priced, totaling $18.4 billion. However issuance is likely to be slightly lower next year, as the FHFA is considering alternative ways to further reduce the GSEs' multifamily businesses in 214. Freddie Mac estimates about $25 billion of issuance across 15 to 2 K-Deals, depending on FHFA s guidance for next year. Exhibit 3: New issue K-Deals K-Deal Pricing 1-year K-Deals: Lead UW Loan Count Deal Bal ($mn) Top 1 Loan Pct WAC Orig WAM (Yr Mo) Class A1 Px spread (bp) Class A2 Px spread (bp) B-piece Buyer K35 Nov 213 CS/MS 79 1,53 39% 4.1 9:7 S+55 S+55 Ares Management K34 Nov 213 CS/WFS 79 1,547 35% 3.8 9:7 S+56 S+58 Riverbanc K33 Oct 213 WFS/BAML 86 1,646 36% 3.7 9:8 S+61 S+65 Berkshire Property Advisors K32 Sep 213 JPM/BAML 9 1,516 34% 3.7 9:8 S+59 S+65 Related Cos. K31 Aug 213 JPM/BAR 88 1,569 31% 3.8 9:8 S+68 S+65 Providence Equity and Benefit Street K3 Jul 213 CS/BAR 79 1,635 4% 3.7 9:6 S+63 S+7 Angelo, Gordon and McDowell Properties K29 Jul 213 WFS/MS 87 1,638 35% 3.7 9:6 S+65 S+75 Emmes and 4 Capital K28 Jun 213 JPM/CS 88 1,9 32% 3.7 9:7 S+4 S+65 Carmel Partners K27 May 213 BAML/BAR 78 1,639 39% 3.7 9:7 S+31 S+53 Riverbanc K26 Apr 213 WFS/BAR 81 1,466 35% 3.8 9:5 S+3 S+49 Torchlight K25 Feb 213 BAML/MS 83 1,535 32% 3.8 9:7 S+28 S+45 Berkshire Property Advisors K24 Jan 213 WFS/BAR 74 1,449 35% 3.7 9:7 S+28 S+44 Related Cos. Other K-Deals: KF2 Oct 213 WFS/JPM 87 1,54 26% 3. 5:8 L+38 na Torchlight KGRP Oct 213 JPM/DBS 27 1,66 51% 2.5 6:6 L+38 na Greystar and GS K713 May 213 JPM/BAML 74 1,61 36% 3.3 6:7 S+25 S+35 Related Cos. KS1 May 213 WFS % 4.4 8:4 S+42 S+6 Wells Fargo K712 Apr 213 JPM/WSF 74 1,755 32% 3.6 6:6 S+2 S+33 Berkshire Property Advisors KSMC Mar 213 MS/JEF 69 1,5 36% 3.9 9:1 S+35 S+6 Southern Management K52 Mar 213 JPM/BAML 41 1,74 49% 3.5 4:1 S+18 na MAG K52 Source: Credit Suisse, CMAlert Voluntary prepayments are infrequent for in the fixed-rate K-Deals. Most loans are only allowed to be defeased (93% of the universe) and the rest primarily carry yield maintenance (YM) penalties. The floating-rate K-Deals, the K-F series, on the other hand include loans with relatively weak prepayment protection such as percentage penalties ranging from 1% to 3%. For example in KF1 transactions, 24 of the 8 loans representing 33% of original deal balance, paid off early (including seven in November). Agency CMBS Market Watch 13

14 Credit problems continue to be minimal. Only three loans are delinquent and another two are in special servicing across the entire $7 billion K-Deal universe as shown in Exhibit 31. Exhibit 31: Delinquent and/or specially serviced loans Current Balance ($mn) Previous Status Special serv. tr. date Deal Loan Deal Vintage Loan name Pct Status City, State K9 21 Campus Habitat 9.1.8% 6 Days 3 Days na Mt. Pleasant, MI K The Retreat At Stonebridge Ranch % Cur Cur 2/12 McKinney, TX K6 21 Green Meadows Apartments 3.7.4% 3 Days < 3 Days na Texas City, TX K1 211 Wellesley Crescent 7..6% 3 Days Cur 5/13 Redwood City, CA K Roble Vista Apartments 4.1.4% Cur Cur 5/13 Palo Alto, CA Source: Credit Suisse, Intex, Trepp Update on delinquent and specially serviced loans Green Meadows Apartments in K6 ($3.7 million,.3% of deal balance) is now 3-days delinquent. Collateralized by a 152 unit apartment community in Texas City, TX, the loan s DSCR declined to.97x (on a net cash flow basis) during 213 H1 as the occupancy dropped to 8%. The loan has not yet been transferred to special servicing. Campus Habitat in K9 ($9.1 million,.8% of deal balance) became 6-days delinquent in November. The loan is backed by a 124 unit/348 bed student housing complex near Central Michigan University, in Mt. Pleasant, MI. According to the servicer commentary, the borrower has been sporadically late with payments in the last 12 months and the management company has been replaced this past summer. Cash flows are expected to increase but the servicer notes indicated that market absorption and declining campus enrollment have adversely impacted leasing velocity. As of November, the loan had not been transferred to the special servicer. The Retreat at Stonebridge Ranch in K74 ($28.7 million, 2.4% of the deal) was transferred to a receiver due to a SEC litigation back in December 211. The receiver s second liquidation plan was approved in August by the US District Court in Utah. The Retreat at Stonebridge Ranch will be sold as a part of a portfolio that includes nine properties of relatively high quality and/or located in attractive markets in Texas and Louisiana. The properties are marketed by Hendricks Berkadia. 2 It is likely that the Retreat at Stonebridge Ranch loan will be assumed with minimal or no loss, in our view. The latest appraisal reported in the remittance reports values the property at over $41 million, as of April 213, implying a 7% current LTV. Most recent occupancy and DSCR (based on net cash flow) were 92% and 1.79x, respectively. Wellesley Crescent, in K1, and Roble Vista Apartments, in K14, were transferred to special servicing in May. Both loans have been consistently late since the beginning of the year and were reported as 9+-days late in June, but their payment status became current in the subsequent months. A recent appraisal, dated August 213, valued Wellesley Crescent at $12.7 million, implying a 55% current LTV. For Roble Vista Apartments, the 213 H1 DSCR was 1.39x on a net cash flow basis. We continue to keep an eye on the servicer watchlists. The largest fifteen loans are shown in Exhibit 32. The master servicers compile watchlists pursuant to specific portfolio review guidelines set by CREFC. Property condition issues (i.e., Hurricane Sandy, fire damage, deferred maintenance) and financial conditions (i.e., low DSCR) were among the most frequently cited reasons for loans being placed on watchlists. 2 Agency CMBS Market Watch 14

15 Exhibit 32: Top 15 largest loans on watchlist Most Recent DSCR Most Recent Occupa ncy Deal Vintage Loan City, State Cur Bal Deal Pct Watchlist Code Notes K Ocean At 1 West Street New York, NY % /12 1E, 3C Insurance loss K Truffles Tribeca New York, NY % /12 6A Default risk due to insurance loss K Excelsior I Apartments Hackensack, NJ % /13 1F Lower occupancy, increased expenses K Ilume Apartments Dallas, TX 36 3.% /13 1E Low DSCR K The Towers At Four Lakes Lisle, IL % /13 3C Flood damages K The Palms On University Riverside, CA % /13 1F,4A,1E Student Housing, converted from IO to P&I K The Vue On Apache Tempe, AZ % /13 4A Lower occupancy K3 29 Highland Ridge & Highland Glen Oklahoma City, OK % /12 3C Insurance loss K Reveille Ranch Bryan, TX % 1.3 Na 7/13 4A Student Housing K Broadmoor At Jordan Creek West Des Moines, IA % /13 1E Property taxes increasing K Hampton Bay Kent, WA 25 2.% 1.7 Na 11/13 na Low DSCR K The Suites At Overton Park Lubbock, TX %.89 Na 9/13 1E, 1F Student Housing. Low DSCR K Legacy Point Arlington, TX % /13 na na K City View At Southside Greensboro, NC % /13 1E Increased operating expenses K Premier Apartments Evanston, IL % /13 1F, 1E Low DSCR, converted from IO to P&I Servicer Watchlist Codes: 1A to 1J:Financial Conditions 2A to 2H: Borrower Issues 3A to 3C: Property Condition Issues 4A to 4F: Lease Rollover, Tenant Issues and Vacancy 5A: Maturity 6A: Other (Servicer Discretion) Source: Credit Suisse, Trustee reports,trepp Watchlist date Agency CMBS Market Watch 15

16 Fannie Mae DUS The fourteenth DUS REMIC deal, FNA 213-M14, priced in November, bringing the total issuance to $11.6 billion for 213. In comparison, 18 deals totaling $13.4 billion priced last year. Ten of the 14 DUS REMIC transactions this year came from Fannie Mae s GeMS TM program 3. Exhibit 33: New issue FNA deals Deal Bal ($mn) Top 1 Loan Pct FNA Deal Pricing Lead UW Loan Count Orig WAC Class Name Px (bp) Class Name Px (bp) Class Name Px (bp) Class Name Px (bp) 213-M14* Nov 213 MS 25 1,276 26% 5.2 A1 S+55 A2 S+58 AB1 S+65 AB2 S M13* Oct 213 DBS 25 1,28 24% 5.1 A S+44 FA L+35 APT S+52 A2 S M12* Sep 213 WFS 218 1,88 2% 4.5 A S+35 FA L+33 SA n/a APT S M11* Jul 213 CS % 5.7 A n/a FA L+33 SA n/a 213-M1 Jul 213 WFS % 4. AFL L M9* Jun 213 BAR 162 1,22 22% 4.7 ASQ1 S+15 ASQ2 S+32 A1 S+4 A2 S M8 May 213 NOM % 2.1 FA L M7* May 213 GS 175 1,21 24% 4.6 ASQ1 S+1 ASQ2 S+26 A1 S+31 A2 S M6 Apr 213 CS % 4.5 1A1 n/a 1A2 n/a 2A 213-M5* Apr 213 CITG % 5.4 ASQ1 S+1 ASQ2 S+2 ASQ3 S+38 ASQ4 S M4* Mar 213 CS % 5.4 ASQ1 S+16 ASQ2 S+24 A1 S+35 A2 S M3* Feb 213 BAML 166 1,12 32% 4.6 ASQ1 S+1 ASQ2 S+17 A1 S+27 A2 S M2 Feb 213 WFS % 3.8 AFL L M1* Jan 213 JEF 194 1,193 25% 5. ASQ1 S+1 ASQ2 S+16 A1 S+25 A2 S+43 * GeMS TM deal Source: Credit Suisse, CMAlert Prepayments remain minimal for FNAs. Only 11 loans totaling $648 million paid off this year, from a universe of nearly 5,8 loans totaling $34 billion securitized in post-29 FNAs. Of those, more than half (62 of 11) paid off with a yield maintenance penalty (YM) averaging 12% of the paid off loan balance. We show the paid-off loan statistics (represented as a percentage of original balance) in Exhibit 34. Deals with no paid-off loans, 23 of 5 post 29-FNA transactions, are not displayed in the exhibit. Delinquencies are infrequent across post-29 FNA deals and no loan was delinquent last month. We also note that in the entire Fannie Mae DUS, MBS delinquencies are miniscule. Only four DUS loans totaling $34 million, or.2% of the $121 billion outstanding universe, were reported as 6+days delinquent in November 213. Exhibit 34: Prepayment history for post-29 FNA deals Percentages based on original deal balance Deal Orig Bal ($mn) Status Life-time (pct) FNA 29-M1 $54 Default Prepay with YM Payoff (no YM) FNA 29-M2 $586 Default Prepay with YM Payoff (no YM) FNA 21-M1 $517 Default Prepay with YM Payoff (no YM) FNA 21-M2 $866 Default Prepay with YM Payoff (no YM) FNA 21-M3 $526 Default Prepay with YM Payoff (no YM) FNA 21-M4 $542 Default Prepay with YM In a GeMS TM deal, underlying DUS loans are selected by Fannie Mae s Multifamily Capital Markets group, not by a dealer. Agency CMBS Market Watch 16

17 Exhibit 34: Prepayment history for post-29 FNA deals Percentages based on original deal balance Deal Orig Bal ($mn) Status Life-time (pct) Payoff (no YM) FNA 21-M5 $581 Default Prepay with YM Payoff (no YM) FNA 21-M6 $527 Default Prepay with YM Payoff (no YM) FNA 21-M7 $565 Default Prepay with YM Payoff (no YM) FNA 211-M1 $584 Default Prepay with YM Payoff (no YM) FNA 211-M2 $594 Default Prepay with YM Payoff (no YM) FNA 211-M7 $577 Default Prepay with YM Payoff (no YM) FNA 211-M8 $719 Default Prepay with YM Payoff (no YM) FNA 211-M9 $513 Default Prepay with YM Payoff (no YM) FNA 212-M8 $789 Default Prepay with YM Payoff (no YM) FNA 212-M9 $1,431 Default Prepay with YM Payoff (no YM) FNA 212-M11 $7 Default Prepay with YM Payoff (no YM) FNA 212-M13 $1,119 Default Prepay with YM Payoff (no YM) FNA 212-M14 $1,15 Default Prepay with YM Payoff (no YM) FNA 212-M17 $1,11 Default Prepay with YM Payoff (no YM) FNA 213-M1 $1,193 Default - - Prepay with YM Payoff (no YM) - - FNA 213-M3 $1,121 Default.4.4 Prepay with YM Payoff (no YM) - - FNA 213-M4 $94 Default - - Prepay with YM.3.3 Payoff (no YM) - - FNA 213-M5 $911 Default - - Prepay with YM Payoff (no YM) FNA 213-M7 $1,21 Default - - Prepay with YM.3.3 Payoff (no YM) - - FNA 213-M9 $1,22 Default - - Prepay with YM Payoff (no YM) - - FNA 213-M12 $1,88 Default - - Prepay with YM.6.6 Payoff (no YM) - - *Remaining FNA deals do not have any payoffs to-date. Source: Credit Suisse, Fannie Mae 49-6 Agency CMBS Market Watch 17

18 SBA 54/CDC The latest SBA 54 debentures deal, SBAP 213-2L, priced at 45 bp over the swap curve (UST+53 bp) with an overall coupon of 3.38% (Exhibit 35). This is 24 bp lower than the rate on September s transaction (3.62%), which was the highest coupon in 213. Exhibit 35: New issue SBA 54/CDC deals (2-year debentures) Deal Pricing Balance ($mn) Number of Debentures Coupon (%) Px Spread over 1yr UST (bp) Px Spread over 1yr Swaps (bp) SBAP 213-2L Dec 5, SBAP 213-2K Nov 12, SBAP 213-2J Oct 1, SBAP 213-2I Sep 5, SBAP 213-2H Aug 8, SBAP 213-2G Jul 11, SBAP 213-2F Jun 6, SBAP 213-2E May 9, SBAP 213-2D Apr 11, SBAP 213-2C Mar 7, SBAP 213-2B Feb 7, SBAP 213-2A Jan 1, Source: Credit Suisse, NADCO Voluntary prepayments keep steadily rising for SBA 54 deals. The 12-month CPR is now at 7.%, up 3 bp since last month. Default-related prepayments (accelerations) continue to trend down, from the record high of 6.7% in late 21, to 1.9% as of November (Exhibit 36). We have long argued that with a gradually improving economy, SBA 54 defaults are likely to keep declining and head back toward their long-term historical level, below 2% levels. We show the historical prepay rates for each issuance year in Exhibit 37. Exhibit 36: Voluntary & Involuntary prepay speeds CPR Voluntary Prepay Default/Acceleration Source: Credit Suisse, BNY Mellon Agency CMBS Market Watch 18

19 Exhibit 37: SBA 54 payment speeds by cohort Voluntary Prepayments Year All Involuntary Prepayments (Default/Acceleration) Year All Total Prepayments Year All Source: Credit Suisse, BNY Mellon Issue year is based on SBA fiscal year, which is from October 1 to September 3. Agency CMBS Market Watch 19

20 SBIC Debentures and Participating Securities Exhibit 38: SBIC Debentures payment speeds Deal Original Balance ($mn) Rate Current Factor Vol. Prepay Annual CPR (Year Since Origination) Default (Accel.) SBIC 23-1A $ x.34x.46x.%.5% 22.7% 9.4% 22.8% 17.4% 12.5% 3.7% 12.% 1.% 14.3% SBIC 23-1B $ x.75x.19x.% 7.5% 1.9% 9.4% 2.9% 32.8% 7.8% 16.1% 66.6% 68.1% 25.9% SBIC 24-1A $ x.74x.21x.% 1.9% 3.8% 9.6% 7.2% 27.4% 39.9% 49.5% 72.% 28.5% SBIC 24-1B $ x.83x.8x.4%.4% 9.6% 4.5% 7.6% 34.6% 2.9% 66.3% 56.7% 24.6% SBIC 25-1A $ x.74x.9x.5%.% 7.4% 3.4% 6.9% 6.1% 28.8% 27.2% 19.8% SBIC 25-1B $ x.58x.5x.%.%.5% 8.6% 2.2% 37.2% 32.4% 3.1% 12.4% SBIC 26-1A $ x.72x.6x.%.% 1.1% 9.6% 4.8% 46.1% 52.3% 19.5% SBIC 26-1B $ x.59x.5x.%.%.% 2.7% 7.2% 45.9% 45.2% 14.5% SBIC 27-1A $ x.61x.6x 6.7% 5.% 7.4% 15.% 28.8% 33.8% 16.9% SBIC 27-1B $ x.63x.4x 9.1%.%.7% 27.% 36.% 4.5% 18.5% SBIC 28-1A $ x.51x.4x 8.6% 5.% 4.4% 21.1% 31.8% 14.9% SBIC 28-1B $ x.72x.6x.8% 13.% 31.6% 41.4% 58.% 28.3% SBIC 29-1A $ x.21x.2x 1.% 3.1% 3.8% 16.7% 6.4% SBIC 29-1B $ x.19x.4x 1.%.2% 15.6% 13.7% 7.% SBIC 21-1A $ x.16x.8x 1.7% 8.2% 16.% 8.8% SBIC 21-1B $ x.7x.2x.4% 4.5% 7.9% 3.6% SBIC 211-1A $ x.1x.1x 1.1% 1.7% 1.4% SBIC 211-1B $ x.2x.x.4% 3.6% 1.5% SBIC 212-1A $ x.x.x.2%.2% SBIC 212-1B $ x.x.x.%.% SBIC 213-1A $1, x.x.x.%.% Payment through September 213. Next payment date is March 214. Post 27 debentures have no prepayment penalty feature. Source: Credit Suisse, SBA Deal Life Time Speed Exhibit 39: SBIC Participating Securities (PSPC) payment speeds Deal Orig. Bal. ($mn) Rate Current Factor Annual CPR (Year Since Origination) SBIC 23-P1A $ x 2.9% 7.% 19.1% 29.9% 28.7% 36.1% 57.2% 47.5% 3.% 1% 35.9% SBIC 23-P1B $ x 2.9% 12.4% 15.6% 26.2% 34.3% 3.% 31.3% 36.9% 33.9% 1% 34.5% SBIC 24-P1A $ x 2.9% 11.6% 16.2% 19.8% 31.9% 42.8% 37.6% 16.9% 53.% 54.2% 3.1% SBIC 24-P1B $ x 3.6% 9.% 12.6% 32.3% 27.9% 31.1% 21.2% 28.5% 48.8% 11.% 24.7% SBIC 25-P1A $ x 4.% 13.1% 16.2% 23.3% 35.7% 31.4% 39.% 39.5% 34.3% 27.% SBIC 25-P1B $ x 2.% 8.2% 18.5% 18.6% 25.3% 38.2% 31.2% 48.5% 57.4% 26.5% SBIC 26-P1A $ x 3.8% 13.4% 19.8% 24.6% 41.4% 27.7% 46.4% 56.2% 3.2% SBIC 26-P1B $ x 1.2% 5.6% 11.9% 28.3% 34.% 35.6% 44.4% 23.% 24.5% SBIC 27-P1A $ x 4.5% 8.3% 14.3% 2.6% 28.6% 32.6% 32.9% 2.5% SBIC 27-P1B $ x 3.7% 8.3% 16.9% 19.7% 29.7% 41.9% 21.5% 21.1% SBIC 28-P1A $ x 1.3% 17.% 12.5% 17.% 29.7% 27.1% 17.5% SBIC 28-P1B $ x 2.9% 22.7% 15.2% 11.6% 23.% 15.2% SBIC 29-P1A $ x 4.6% 15.5% 11.7% 8.8% 23.2% 12.4% Payment through November 213. Next payment date is February 214. PSPC program is discontinued Source: Credit Suisse, SBA Deal Life Time Speed Agency CMBS Market Watch 2

21 Agency CMBS Market Watch 21 Agency CMBS Summary Matrix Program Ginnie Mae Project Loan REMICs FHA/GNMA Project Loans Fannie Mae DUS REMICs, DUS Megas DUS MBS (Delegated Underwriting Servicing) Bloomberg Ticker GNR DUS REMIC: FNA Market Size (outstanding balance as of November 213) GNR: $67 billion Standalone GN: $2 billon DUS Mega: FN, MFMEG FNA: $34 billion DUS Mega: $14 billion Example Deal GNR FNA 212-M3 Deal Structure Multi-tranche, sequential pay classes Standalone DUS: $82 billion FN FN3 FNA: Multi-tranche, sequential pay classes Mega: Single-tranche, pass through IO Class Yes FNA: Yes Average Deal Size in 212 (range) $376 million ($28mn - $624mn) Mega: No Average # of Loans 71 FNA: 17 Loan Terms (most popular) Fixed-rate, 35-4 year maturity with full amortization Freddie Mac K-Deals Capital Markets Execution (CME ) FREMF (FHMS for guaranteed classes) Small Business Administration (SBA) SBA 7(a) Pools SBA 54 Debentures SBIC Debentures SBA 7(a) Loan Program SBA 54/CDC Loan Program SBA SBAP SBIC FREMF: $7 billion $21 billion 2-year Debenture: $26 billion 1-year Debenture: $75 mil. FREMF 212-K22 SBA 5969 SBAP 212-2F Multi-tranche, sequential pay classes with credit enhancement FNA: $744mn ($298mn-$1.43bn) $1.25 billion Mega: $69mn ($4mn -$263mn) Mega: 11 Fixed-rate, 1-year balloon maturity with 3-year amortization (1/9.5 DUS MBS) SBAP 212-1D Single-tranche, pass through Single-tranche, pass through Yes (multiple) Optional No No ($448mn - $1.41 billion) $18 million ($1mn - $11mn) Small Business Investment Company (SBIC) Program Debentures: $5.6 billion PSPC: $1.1 billion SBIC 212-1A SBIC 29-P1A 2yr: $46mn ($32mn-$57mn) $687 million 1yr: $39mn ($2mn - $58mn) year Debenture: 614 Fixed-rate, 1-year balloon maturity with 3-year amortization Floating-rate, 5 to 25-year maturity loans. Indexed to Prime Rate, resetting monthly or quarterly 1-year Debenture: 74 Fixed-rate, 2-year maturity with full amortization (for 2- year Debenture) Single-tranche, pass through ($572mn - $82mn) Payment Schedule ly ly ly ly Semi-annual Semi-annual Collateral / Property Types Mostly low- and moderateincome multifamily housing and healthcare loans (nursing homes and assisted-living facilities) Proceeds can be used for new construction or substantial rehabilitation projects, as well as refinancing of existing mortgages Mostly standard conventional multifamily housing Other eligible property types: affordable multifamily housing and low-income housing tax credit, seniors housing, manufactured housing, cooperative housing, student housing, military housing, rural rental housing Mostly standard conventional multifamily housing secured by occupied, stable and completed properties Limited amount of agerestricted multifamily, student housing, cooperative housing and Section 8 housing assistance payments (HAP) contracts Full-recourse loans to small businesses Proceeds are used for expansion/renovation; new construction, purchase of land or buildings; purchase equipment, fixtures, leasehold improvements; working capital; refinance debt for compelling reasons; seasonal line of credit, inventory Real estate for 2-year Debenture and machinery for 1-year Debenture Loan proceeds can only be used for fixed asset projects, such as purchasing and/or improving land, constructing new facilities, renovating existing facilities or purchasing machinery/equipment 252 Fixed-rate, 1-year maturity, non-amortizing loans Non-recourse loans to small businesses Non-recourse equity investments in small businesses Proceeds are used for operating capital purposes and for acquisitions of existing businesses, as well as other activities including research & development and marketing

22 Agency CMBS Market Watch 22 Agency CMBS Summary Matrix Loan Origination Process Guarantee Nature of Guarantee Ginnie Mae Project Loan REMICs Loans are sourced/ originated by a network of HUD-approved private lenders. Loans are underwritten by HUD according to FHA statutory requirements Insured by HUD, and Ginnie Mae provides additional guarantee Full faith and credit guarantee of US government Full recovery and timely payment of principal and interest Prepayment penalties are not guaranteed for IO bondholders Fannie Mae DUS REMICs, DUS Megas Loans are originated, underwritten and serviced by a network of private DUS lenders Origination and servicing guidelines are set by Fannie Mae in DUS program (Delegated Underwriting Servicing) Losses are shared by a DUS lender and Fannie Mae according to a loss sharing arrangement Fannie Mae guarantee Full recovery and timely payment of principal and interest Yield maintenance (YM) payments associated with prepayments are not guaranteed Freddie Mac K-Deals Loans are sourced/ originated by Freddie Mac s Program Plus Seller/Servicer network of private lenders Loans are underwritten inhouse by Freddie Mac through its Capital Markets Execution (CME ) program Freddie Mac guarantee (on the senior classes) Timely payment of interest to senior classes (Classes A1, A2 and X1) Timely payment of principal to the classes A1 and A2 upon maturity of any loan, and ultimate payment of principal by final distribution date (no extension) Reimbursement of any realized losses and expenses allocated to senior classes upon resolution of defaulted loans (not on the date loan default occurs) Small Business Administration (SBA) SBA 7(a) Pools SBA 54 Debentures SBIC Debentures Originated and serviced by private sector lenders Lenders can sell the SBA guaranteed portion of the loans (75% to 85% of balance) into secondary market, which are pooled and sold to institutional investors as SBA Pools Full faith and credit CDC/54 lending program involves two loans: (1) a senior lien loan from a private sector lender (typically banks) covering up to 5% of the project cost /collateral, (2) a junior lien loan through the CDC (Certified Development Company, licensed by SBA) covering up to 4% of the project cost Only the junior liens from CDCs are backed by a 1% SBA-guaranteed debenture, which are pooled and securitized as SBA DCPCs Full faith and credit guarantee guarantee of US government of US government Full recovery and timely payment of principal and interest Full recovery and timely payment of principal and interest Small Business Investment Companies (SBICs) are privately owned venture capital funds licensed and regulated by the SBA SBICs raise funds from private investors which are matched by SBA at a 2:1 ratio of public to private funding; i.e., for every $2 debt capital ( Leverage ) borrowed from the SBA, the SBICs must raise $1 of capital from private investors Full faith and credit guarantee of US Government Full recovery and timely payment of principal and interest

23 Agency CMBS Market Watch 23 Agency CMBS Summary Matrix Call Protection Market Pricing Assumption Ginnie Mae Project Loan REMICs Combination of a hard lockout and penalties for a maximum of 1-year period Most popular call provisions in recent years are 2/8 (lockout for two years; followed by eight years of prepayment penalties) and 1/9 5/5 was the predominant call protection type for older cohort project loans (i.e., pre-25) 15% CPJ: the conventional PLD curve for default, and 15% flat CPR for voluntary prepayments after lockout Fannie Mae DUS REMICs, DUS Megas 1/9.5 DUS MBS: Yield Maintenance for 9.5 year, open six months (most popular) 7/6.5 DUS MBS: Yield Maintenance for 6.5 year, open six months Call protection features can also include defeasance, prepayment fees and lockout % CPY: zero default throughout life and no prepayment after the yield maintenance period ends Source: Credit Suisse, HUD, Ginnie Mae, Fannie Mae, Freddie Mac, SBA, the BLOOMBERG PROFESSIONAL service Freddie Mac K-Deals Lockout and defeasance for the term of the loan except for the last 3 months (most popular) Call protection features can also include yield maintenance and prepayment penalties Small Business Administration (SBA) SBA 7(a) Pools SBA 54 Debentures SBIC Debentures Prepayment penalty during the initial three years for loans with maturities 15- years or longer 2-year Debenture: 1 year of prepay penalties (penalty equal the coupon in 1st year, reduced by 1% annually until year 11) 1-year Debenture: 5 year of prepay penalties (penalty equal the coupon in 1st year, reduced by 2% annually until year 6) % CPR 12% to 14% CPR 5% CPR (secondary trading) 7% CPR % CPR (new issue pricing) No call protection feature: borrowers can prepay in whole on any semi-annual payment date. However, partial prepayments are not allowed