Coleman Government Loan Solutions CPR Report

Transcription

1 Government Loan Solutions CPR Report Providing the most detailed monthly SBA 7(a) and 504 prepayment, default and market information Volume 7, Issue #5 May, 2013 B objudge,government L oan Solutions,E ditor B objudgeisa partnerat Government L oan Solutions. Government L oan Solutionsisa providerof valuation services,prepayment analyticsandoperational support forthesb A marketplace. B obhas25yearsof ex periencein thefix edincomemarkets.h eholds a B.A.in E conomicsfrom V assar C ollegeandan M.B.A.in Finance from N Y U Stern Schoolof B usiness. I N S I D E T H I S I S S U E : Special points of interest: CPRs Rise in April SMA: Fractionalization... 7a Defaults Increase Slightly 20 year Debenture Speeds Rise 7a P repayment Speeds 1-3, SM A 1 & 4 SB IIndex es D ebenturespeds D efault Rate 16 D efault C urtailment Ratios 16 & 22 V alueindices Sale& Settlement Tip 15 P R E PA Y S R I S E 5% I N A P R I L In April, prepays rose slightly, but stayed below 6% for the second month in a row after starting the year with two +7% prints. The increase was based on slight increases in both defaults and voluntary prepayments. As for the detail, overall prepayments rose 5.17% to 5.86% from 5.57% in March. In comparing prepayment speeds for the first month of 2013 to the same period in 2012, we see that this year continues to run 25% ahead of 2012, with YTD CPRs at 6.67% versus 5.33%. As for the largest sector of the market, 20+ years to maturity, prepayment speeds rose by 5.47% to 5.19% from 4.92% in March. Turning to the CPR breakdown, the default CPR rose by 10% to 2.28% from 2.07%. This reading continues a ten month string of sub-3% readings for defaults. Regarding voluntary prepayments, they rose for the first time in three months, increas- A rticlecontinuedon page3,graphson page2anddata on pages SMA: T H E F R A C T I O L I Z A T I O N O F SBA 504 F I R S T L I E N L E N D E R S B yjordan B lanchard While an active SBA 504 first lien lender can be defined differently, GLS defines an active lender as funding at least six 504 loan transactions per year, or an average of one 504 transaction every two months. Most SBA 504 industry participants and observers would assume that there are a relatively large number of active SBA 504 first lien lenders, but this article will show that is not the case. In reality, there is a huge disparity between very active lenders and those who originate 504 loans far less often. All data used in this article is compiled from the N A D C O ThirdP artygrossl oan A pprovals report as of 9/30/12. DCO 2013 and Government Loan Solutions. All Rights Reserved. receives its information from the SBA. The report can be downloaded via the following link: public/504stats/fy12tpl/ Copy%20of% 20ThirdPartyActivity_FY2012_asof9_30_2012.xlsx C ontinuedon page4 Small Business Fact of the Month 75% of small business owners aren t looking to grow big. G I V E M E S I X H O U R S T O C H O P D O W N A T R E E A N D I W I L L S P E N D T H E F I R S T F O U R S H A R P E N I N G T H E A X E. A B R A H A M L I N C O L N SBLA. COME PREPARED. S I G N U P A T W W W. S B L A. U S

2 Page 2 P R E PAYMENT S P EEDS...CONTINUED B objudgecan bereachedat (216) ex t.133or bob.judge@ glsolutions.us

3 P R E PA Y M E N T S P E E D S...CONTINUED Page 3 ing to 3.57% from 3.49% in March. Preliminary data for next month suggests that voluntary prepayments will rise back above 4%, similar to readings from the first two months of this year. Regarding overall prepayments, preliminary data from Colson suggests a reading near 7% after two sub-6% readings in March and April. Turning to the default/ voluntary prepayment breakdown, the Voluntary Prepay CPR (green line) rose to 3.57% from 3.49%, a 2% increase. While the VCPR remained below 4%, the Default CPR (red line) moved higher by 10% to 2.28% from 2.07% the previous month. Prepayment speeds rose in four out of six maturity categories. Increases were seen, by order of magnitude, in the 8-10 sector (+75% to CPR 11.01%), <8 (+35% to CPR 10.44%), (+18% to CPR 7.11%) and 20+ (+5% to CPR 5.19%). Decreases, also by order of magnitude, were seen in (-55% to CPR 4.11%) and (-37% to CPR 4.25%). April represented the second month in a row of sub-6% prepayment speeds after two readings above 7%. However, preliminary data for May suggests a trip back near 7%, strengthening the case that we have seen the lows in prepayment speeds after six years of declines. While no one predicts dramatic increases in 2013, expect prepayment readings above 7% to become commonplace this year. Forfurtherinformation on the terminologyandconceptsusedin this article,pleasereferto the Glossary andd efinitions at theendof the report. D ata on pages20-21 While no one predicts dramatic increases in 2013, expect prepayment readings above 7% to become commonplace this year. Increase your premium dollars by eliminating brokerage fees. Sell your USDA B&I and CF Loans Investor Direct to Thomas USAF, America s largest direct investor. Contact Mike (404) or Vasu at (404)

4 Page 4 SMA...CONTINUED THIRD PARTY LENDER Approved Third Party Approved Dol- JPMorgan Chase Bank, National Association 493 $369,031,959 Bank of America, National Association 291 $315,163,440 Zions First National Bank 223 $154,546,041 Wells Fargo Bank, National Association 189 $180,102,078 Bank of the West 112 $128,298,283 The aggregate dollar volume of third party loans approved during fiscal 2012 was $7.2B. This figure was helped in part by the SBA 504 refinance program and the SBA First Lien Mortgage Pool program. There were a total of 8,039 loans approved resulting in an average loan amount of just over $895,000. A total of 1,892 first lien lenders received an approval for an SBA 504 transaction. A straight average would equate to 4.25 transactions approved per lender; however, the reality is that the industry is highly fractionalized, and concentrated with a finite few lenders that also happen to be some of the nation s largest banks. The top 5 lenders accounted for an astounding 16% of the total first mortgage liens approved. This means that 0.26% of the total number of lenders control almost 20% of the market. The listing of the top 5 lenders and their activity is highlighted in the above table. The top 20 lenders accounted for over 27% of the 504 unit approvals with the lenders ranked 6 through 20 adding an additional 11% in volume (16% to 27%). Increasing the lender count by 300% increases the number of loans funded by only 69%. After the top 20 lenders, the activity per lender drops dramatically. Eighty-eight percent of 504 lenders approved 6 loans or less during the fiscal year. Most astonishing is that 46.5% of all third party lenders had only one single loan approval. Of the 1,892 third party lenders participating in the 504 program, 879 received approval for only one transaction. Why is This Worth Discussing? Lenders and CDC s may be wondering why this highly fractionalized state of third party lenders matters. GLS suggests at least two major risks to the 504 industry due to this disparity: 1. A large number of loan approvals are concentrated in very few, large lenders. This means that if these lenders turn their attention to other lending products such as SBA 7(a), conventional, consumer, etc., the volume of 504 loans could be significantly affected. Large banks have been known to come into and out of the 504 program. If economic reasons dictate that one or two of these large lenders should exit the 504 program at the same time, the effect on the industry would be widely felt. 2. If roughly half the lenders made only one loan given the benefit of the FMLP program and the refinance program, it s quite possible that a number of these lenders would leave the 504 program altogether. This could result in an adverse delivery of capital to those borrowers most in need as smaller community bank lenders are the lenders most likely to offer flexible underwriting. A nightmare scenario would be the departure of both large lenders and small lenders at the same time. It seems rather unthinkable at this stage, but something like BASEL III guidelines could impair both large and small bank s capital to such a degree that funding 504 loans is too capital intensive. The SBA 7(a) program already provides a high level of capital relief to banks. Increasing capital requirements would further drive both large and small banks further towards SBA 7(a) lending and away from SBA 504 lending. This could be good for the remaining 504 lenders that realize increased activity, but likely negative for the industry overall. Secondary Market One way to counter reduced participation by banks is to foster an increased secondary market for 504 first liens. There are currently three national lenders that purchase 504 first liens on a wholesale basis, but these three lenders will likely equate to less than $350MM in 504 first lien purchases combined. Based on the expected volume of at least $6B this fiscal year, only 6% of 504 first lien volume is expected to trade on the secondary market not nearly enough to give sellers confidence that they will be able to sell a 504 first lien. Also, these three national lenders are, by and large, purchasing the same assets that the lenders desire to retain: multi-purpose property loans that are not too large with high cash flow coverage. A more functional secondary market will provide an outlet for special purpose property loans, larger loans, and loans to growth-oriented companies. GLS continues to make tangible progress in developing an expanded 504 first lien secondary market. Partners include large investment banks, small and large hedge funds, money managers, and non-bank lenders. The interest in 504 lending from those outside the banking system is palpable. Hopefully this interest can be sustained and converted to a fully functioning secondary market in a relatively quick time frame. For More Information On GLS 504 Products & Programs For more information on GLS s 504 products and programs, please contact Jordan Blanchard, jblanchard@glsolution.us, or Tim Turritin, tnt@glsolutions.us.

5 S M A L L B U S I N E S S I N D E X E S Page 5 Since this is the second month of our new Rich / Cheap Analysis, we will start there: While the line has been above fair value since August, 2012, the 15+ line has been just inside the fair value area. However, the cut off day for this month s analysis, 5/15/2013, showed the 15+ line going into Rich territory, with a reading of points, for the first time 9/30/2008. As mentioned above, the line has been in Rich territory for quite some time, and that trend continues this month with a high reading of points above fair value on 5/15/2013, an all-time high. Please note that we have added a new chart that shows the data from 1/1/2010, so the reader can better see current results. As for the IO strip indexes, the indexes for 10 to 25 year IO strips returned 3.26% (versus 2.57%) for equal weighting and 2.99% (versus 2.81%) for actual weighting in April. The IO strips indexes also benefited from price increases in the secondary market. For details regarding returns, please view our charts on this, and the following, page. If you wish to further delve into the SBI Indexes, please visit our website at Registration is currently free and it contains a host of information relating to these indexes, as well as indexing in general. Forfurtherinformation on thesb IIndex es,pleasereferto the Glossaryand D efinitions at theendof thereport. SBI Index Results This month, much like recent ones, continues a string of positive results due to strong pricing in the secondary market and low prepayments. This month saw positive returns for both the pool and IO strip indexes. The pool index that has all eligible pools between 10 and 25 years, returned.29% (versus.29% in April) for equal weighting and.30% (versus.32%) for actual weighting. SB IIndex Resultscontinueon nex t page

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7 S M A L L B U S I N E S S I N D E X E S... C O N T I N U E D Page 7 The will to win is nothing without the will to prepare. Juma Ikangaa SBLA. Come Prepared.

8 Page 8 S M A L L B U S I N E S S I N D E X E S... C O N T I N U E D Principals: Through the joint venture of Ryan ALM, Inc. and GLS, both companies have brought their unique capabilities together to create the first Total Return Indexes for SBA 7(a) Pools and SBA 7(a) Interest-Only Strips, with a history going back to January 1st, Using the Ryan Rules for index creation, the SBI indexes represent best practices in both structure and transparency. Ronald J. Ryan, CFA, Founder and CEO of Ryan ALM, Inc. Ron has a long history of designing bond indexes, starting at Lehman Brothers, where he designed most of the popular Lehman bond indexes. Over his distinguished career, Ron and his team have designed hundreds of bond indexes and ETFs. Bob Judge, Partner, GLS. Bob, a recognized expert in the valuation of SBA-related assets as well as the SBA Secondary Market and is the editor of The CPR Report, a widely-read monthly publication that tracks SBA loan defaults, prepayment and secondary market activity. For more information, please visit our website:

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10 Page 10 DEBENTURE SPEEDS: 20S RISE ON HIGHER VOLUNTARIES In May, 20 year debenture prepayment speeds rose 3.39% to CPR 8.89% from CPR 8.59% in April. While defaults fell again this month, voluntary prepayments rose for the second month in a row, increasing by 5% to CRR 6.75% from CRR 6.42%. As for defaults, they decreased by 1.76% to CDR 2.13% from CDR 2.17%. As for 10 year debentures, they fell by 5% from March, mostly due to a 22% decrease in voluntary prepayments. Defaults rose by 72% to 1.83%, but off a low base of 1.07%. April s 20 year CPR reading is the highest this year, with prepayment speeds rising in each of the first five months of We are now closing in on 9% and the last time we saw that level was May of If it happens, the culprit will likely be voluntary prepayments. Signature Securities Group, located in Houston, TX, provides the following services to meet your needs: SBA Loans and Pools Assistance meeting CRA guidelines USDA B&I and FSA Loans Fixed Income Securities For more information, please call Toll-free Securities and Insurance products are: Forfurtherinformation on theterminologyandconceptsusedin thisarticle, pleasereferto the GlossaryandD efinitions at theendof thereport. NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE Signature Securities Group Corporation (SSG), member of FINRA/SIPC, is a registered broker dealer, registered investment advisor and licensed insurance agency. SSG is a wholly owned subsidiary of Signature Bank. D ata andc hartson thefollowingpages A Breakthrough Tool for Underwriters and SBA Investors Finally a Web-based Loan Analytics Portal for 7(a) and 504 loan performance, accessible through a user friendly, searchable database. 7(a) default and prepayment data going back to default data going back to Monthly subscribers will have access to customized searches using criteria such as: Structural: Reset Frequency, Guarantee Percentage, Interest Rate, Gross Margin, Maturity, Cohort Year, and Loan Size Industry: ICS or SIC codes, SIC Major Groups, or SIC Division Franchise: Franchise Code or Franchise Name Geography: State, County, MSA and Urban versus Rural area. Demographics: County income as a Percentage of State or National income levels, Woman or Veteran owned business. SBLA. Come Prepared. For more information, please call Bob Judge at x133 or visit the website at: Subscribe at the website:

11 Page D C P C P R E PA Y S P E E D S - L A S T 5 Y E A R S DATE 20 YR. CPR 20 YR. CRR 20 YR. CDR 10 YR. CPR 10 YR. CRR 10 YR. CDR ALL CPR ALL CRR ALL CDR 6/1/2008 7/1/2008 8/1/2008 9/1/ /1/ /1/ /1/2008 1/1/2009 2/1/2009 3/1/2009 4/1/2009 5/1/2009 6/1/2009 7/1/2009 8/1/2009 9/1/ /1/ /1/ /1/2009 1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/2010 6/1/2010 7/1/2010 8/1/2010 9/1/ /1/ /1/ /1/2010 1/1/2011 2/1/2011 3/1/2011 4/1/2011 5/1/2011 6/1/2011 7/1/2011 8/1/2011 9/1/ /1/ /1/ /1/2011 1/1/2012 2/1/2012 3/1/2012 4/1/2012 5/1/2012 6/1/2012 7/1/2012 8/1/2012 9/1/ /1/ /1/ /1/2012 1/1/2013 2/1/2013 3/1/2013 4/1/2013 5/1/ % 8.48% 8.20% 8.32% 8.39% 7.58% 6.76% 6.41% 6.84% 6.96% 7.18% 6.12% 6.83% 7.09% 7.24% 7.59% 7.48% 7.49% 7.46% 8.72% 8.86% 8.28% 9.76% 8.83% 9.41% 8.30% 8.08% 8.38% 7.76% 8.65% 8.54% 9.68% 8.03% 8.71% 8.67% 9.53% 8.78% 7.92% 7.49% 6.83% 7.87% 7.81% 7.43% 7.76% 7.17% 8.17% 7.96% 8.43% 8.15% 7.77% 8.31% 6.94% 8.63% 8.45% 8.59% 7.79% 8.00% 8.16% 8.59% 8.89% 6.65% 6.52% 6.52% 6.23% 6.03% 5.26% 4.15% 3.72% 3.35% 3.15% 2.93% 2.24% 2.73% 2.62% 2.37% 2.34% 2.21% 2.16% 1.99% 2.09% 2.05% 2.24% 2.15% 1.56% 1.84% 1.58% 1.42% 2.22% 1.95% 2.43% 2.61% 3.10% 3.14% 2.77% 2.87% 3.37% 3.65% 2.87% 3.31% 2.76% 3.50% 3.52% 3.50% 3.48% 3.95% 4.23% 4.17% 4.95% 4.13% 4.82% 5.18% 4.61% 5.89% 5.49% 5.53% 5.61% 6.59% 5.88% 6.42% 6.75% 1.87% 1.96% 1.68% 2.08% 2.37% 2.32% 2.61% 2.69% 3.49% 3.81% 4.25% 3.87% 4.11% 4.47% 4.87% 5.25% 5.28% 5.33% 5.47% 6.63% 6.81% 6.03% 7.61% 7.26% 7.57% 6.71% 6.66% 6.16% 5.81% 6.22% 5.93% 6.58% 4.89% 5.94% 5.80% 6.16% 5.13% 5.05% 4.18% 4.07% 4.36% 4.29% 3.94% 4.27% 3.22% 3.94% 3.79% 3.48% 4.02% 2.95% 3.13% 2.34% 2.74% 2.95% 3.06% 2.18% 1.42% 2.27% 2.17% 2.13% 9.55% 5.43% 6.31% 8.08% 7.80% 5.07% 7.71% 10.52% 5.41% 12.44% 7.24% 4.98% 9.73% 10.61% 13.45% 8.76% 10.61% 17.64% 9.69% 12.27% 3.07% 8.39% 10.74% 4.96% 14.04% 7.35% 7.80% 9.85% 5.92% 5.61% 6.20% 4.11% 3.51% 2.57% 4.12% 1.34% 0.45% 1.46% 1.74% 2.37% 2.90% 0.85% 2.86% 3.38% 6.11% 3.75% 5.49% 10.06% 3.01% 4.53% 1.88% 4.13% 7.05% 4.02% 11.15% 5.18% 6.22% 8.72% 4.85% 3.77% 3.35% 1.32% 2.80% 5.50% 3.68% 3.73% 7.26% 9.07% 3.67% 10.07% 4.35% 4.12% 6.87% 7.23% 7.34% 5.02% 5.13% 7.58% 6.68% 7.74% 1.19% 4.25% 3.69% 0.94% 2.89% 2.17% 1.58% 1.13% 1.07% 1.83% 8.53% 8.52% 8.20% 8.21% 8.39% 7.54% 6.76% 6.47% 6.84% 6.99% 7.18% 6.08% 6.83% 7.11% 7.24% 7.70% 7.48% 7.42% 7.46% 8.85% 8.86% 8.24% 9.76% 8.69% 9.41% 8.35% 8.08% 8.46% 7.76% 8.82% 8.54% 9.65% 8.03% 8.79% 8.67% 9.84% 8.78% 7.99% 7.49% 7.06% 7.87% 7.62% 7.43% 7.78% 7.17% 8.28% 7.96% 8.29% 8.15% 8.04% 8.31% 6.96% 8.63% 8.42% 8.59% 7.88% 8.00% 8.05% 8.59% 8.72% 6.65% 6.50% 6.52% 6.16% 6.03% 5.20% 4.15% 3.68% 3.35% 3.18% 2.93% 2.21% 2.73% 2.54% 2.37% 2.31% 2.21% 2.15% 1.99% 2.10% 2.05% 2.27% 2.15% 1.54% 1.84% 1.63% 1.42% 2.27% 1.95% 2.56% 2.61% 3.12% 3.14% 2.88% 2.87% 3.63% 3.65% 2.87% 3.31% 2.83% 3.50% 3.46% 3.50% 3.51% 3.95% 4.35% 4.17% 4.91% 4.13% 5.09% 5.18% 4.63% 5.89% 5.53% 5.53% 5.75% 6.59% 5.83% 6.42% 6.61% 1.87% 2.01% 1.68% 2.06% 2.37% 2.33% 2.61% 2.79% 3.49% 3.81% 4.25% 3.87% 4.11% 4.57% 4.87% 5.40% 5.28% 5.27% 5.47% 6.76% 6.81% 5.97% 7.61% 7.15% 7.57% 6.72% 6.66% 6.20% 5.81% 6.26% 5.93% 6.52% 4.89% 5.91% 5.80% 6.21% 5.13% 5.12% 4.18% 4.23% 4.36% 4.17% 3.94% 4.27% 3.22% 3.93% 3.79% 3.37% 4.02% 2.95% 3.13% 2.33% 2.74% 2.89% 3.06% 2.14% 1.42% 2.22% 2.17% 2.12% 504 DCPC Prepayment Speeds by 10 year, 20 year and All. Source: BONY

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15 Page 15 GLS 7(a) Settlement & Sales Strategies Tip #54 Timing is everything Selling loans is just like hosting a dinner party you want to ensure your audience shows up and is hungry when they do. Plan your sales for those times when it s most likely that buyers will be around and most aggressive. This usually means selling early. Early in the month, early in the week, and early in the day is the best mantra to ensure the best participation in your loan sales. Scott Evans is a partner at GLS. Mr. Evans has over 20 years of trading experience and has been involved in the SBA secondary markets for the last eight of those years. Mr. Evans has bought, sold, settled, and securitized nearly 20,000 SBA loans and now brings some of that expertise to the CPR Report in a recurring article called Sale and Settlement Tip of the Month. The article will focus on pragmatic tips aimed at helping lenders develop a more consistent sale and settlement process and ultimately deliver them the best execution possible.

16 Page 16 F AUULLTT R RAA T TE S EVSET 9 6H%E R DDEEFA E R MI O S OH5I. G In April, the theoretical default rate rose 5% to 2.36% from 2.14% in March. This increase follows declines in each of the previous two months. We remain in the 2-3% band that began 23 months ago that has pushed defaults at or near 15 year lows. With 7a defaults at historic lows and no reason to believe they are going to rise back to Credit Crisis-like levels, expect muted default levels going forward. Forfurtherinformation on theterminologyandconceptsusedin this article,pleasereferto the Glossary andd efinitions at theendof the report. Spectacular achievement is always preceded by unspectacular preparation. Robert Schuller SBLA. Come Prepared. D E FA U L T - C U R TA I L M E N T R A T I O S In our Default-Curtailment Ratios (DCR) we witnessed an increase in the 7a ratio a decrease in the 504 one last month. Please note that an increase in the DCR does not necessarily mean that the default rate is rising, only that the percentage of early curtailments attributable to defaults has increased. SBA 7(a) Default Ratios Last month, the 7(a) DCR remained above 30% for the fourth month in a row, rising 5% to 39.01% from 37.25%. This month, voluntary prepayments rose by a smaller percentage than defaults, causing the overall ratio to increase. Turning to actual dollar amounts, defaults increased by 12% to $81 million from $73 million. As for voluntary prepayments, they rose by 4% to $127 million versus $122 million. SBA 504 Default Ratios The 504 DCR, after rising in March, fell 6% to 24.58% from 26.14% the previous month. With defaults falling by a greater percentage than voluntaries, the ratio decreased. Summary Over the next few months, expect the 7a ratio to fall below 30% while the 504 one remains in the 20% range. Forfurtherinformation on theterminologyand conceptsusedin thisarticle,pleasereferto the GlossaryandD efinitions at theendof the report. Specifically, the dollar amount of defaults decreased by $9 million to $44 million (-17%). As for voluntary prepayments, they fell by $15 million to $135 million (-10%). Graphon page22

17 Page 17 GLS VALUE INDICES FALL ACROSS In March, the GLS Value Indices continued their decline toward lower Libor spreads, with five out of six sub-indices decreasing. The Base Rate / Libor spread moved higher by 1 basis point to +2.99%. As for the prepayment element, CPRs were split, with three rising and three falling. By the end of March, the secondary market crested the magical 120 mark for fullypriced, long loans. All told, the market moved about 1/4 to 1/2 higher by month s end. Turning to the specifics, the largest decrease was seen in the GLS VI-2, which fell by 42% to 21 basis points. The other decreases, by order of magnitude, were: VI-4 (-33% to 109), VI-3 (-4% to 33), VI-6 (-3% to 148) and VI-5 (-.27% to 133). THE B OA R D With the market having finally hit 120, expect a slowing of price rises, at least in the long end of the market. Forfurtherinformation on theterminologyand conceptsusedin thisarticle,pleasereferto the GlossaryandD efinitions at theendof the report. The lone increase was seen in VI-1, which rose by 15% to 36 basis points. D ata on thenex t two pages,graphisbelow 7(a) Secondary Market Pricing Grid: March 2013 Maturity Gross Margin Net Margin Servicing 10 yrs. 15 yrs. 20 yrs. 25 yrs. 2.75% 2.75% 2.75% 2.75% 1.075% 1.075% 1.075% 1.075% 1.00% 1.00% 1.00% 1.00% This Month Last Month Price Price Mos. Ago Price 6-Mos. Ago Price 1-Yr. Ago Price

18 Page 18 G L S V A L U E I N D I C E S : S U P P O R T I N G D A TA Table 1: MONTH Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 BUCKET BUCKET BUCKET BUCKET BUCKET BUCKET 1 CPR 2 CPR 3 CPR 4 CPR 5 CPR 6 CPR 12.45% 11.03% 11.31% 7.25% 7.85% 6.79% 12.11% 10.89% 11.01% 6.96% 7.13% 6.32% 11.33% 11.20% 10.55% 7.09% 7.80% 5.75% 11.16% 10.69% 10.30% 6.99% 8.00% 5.75% 10.05% 9.97% 10.00% 7.33% 8.84% 5.71% 9.90% 10.73% 10.07% 7.12% 8.75% 5.75% 9.96% 10.45% 9.72% 7.34% 8.12% 5.32% 10.56% 11.09% 10.28% 7.88% 8.53% 5.86% 10.94% 11.18% 10.41% 7.83% 8.53% 6.38% 10.32% 11.15% 10.57% 7.13% 8.59% 7.48% 10.45% 11.02% 10.16% 7.38% 8.25% 7.60% 11.29% 10.76% 10.54% 7.48% 8.01% 7.70% 11.35% 10.06% 10.28% 7.27% 7.29% 7.84% 10.55% 9.24% 8.82% 7.05% 6.45% 7.21% 10.89% 8.48% 8.45% 7.30% 5.61% 7.11% 11.99% 8.87% 7.84% 7.49% 5.03% 5.96% 11.22% 9.01% 7.57% 7.22% 4.91% 5.53% 10.43% 8.86% 7.07% 7.20% 5.13% 5.37% 10.60% 9.69% 7.38% 6.90% 4.95% 5.17% 10.82% 9.75% 7.26% 6.11% 5.51% 5.45% 10.25% 9.69% 6.81% 5.39% 5.70% 5.12% 10.02% 9.51% 6.38% 4.94% 6.11% 5.12% 10.25% 8.86% 6.16% 5.14% 6.04% 4.88% 10.23% 9.18% 6.13% 5.00% 5.15% 4.69% 10.29% 8.59% 5.53% 4.77% 5.77% 4.57% 9.94% 8.22% 5.59% 4.85% 5.75% 4.20% 9.74% 7.83% 5.62% 4.78% 5.59% 4.12% 9.00% 8.29% 6.20% 5.23% 5.04% 4.15% 9.17% 9.19% 6.18% 5.11% 4.64% 4.35% 8.53% 8.57% 6.34% 5.16% 5.14% 4.30% 8.52% 8.55% 6.18% 5.46% 4.65% 4.20% 10.19% 8.24% 6.31% 6.03% 4.86% 4.28% 10.42% 9.19% 6.72% 6.54% 4.93% 4.58% 10.78% 8.90% 6.50% 6.63% 5.55% 4.40% 11.30% 8.23% 6.67% 7.18% 5.97% 4.40% 12.35% 8.72% 6.85% 6.90% 6.46% 4.44% 11.44% 8.16% 7.16% 6.52% 6.34% 4.40% 11.31% 8.21% 7.15% 6.16% 6.19% 4.62% 10.87% 7.49% 7.26% 5.99% 5.74% 4.49% 10.83% 7.82% 7.82% 5.83% 6.36% 4.90% 10.54% 7.81% 8.55% 5.20% 6.47% 5.17% 9.73% 7.46% 8.01% 5.81% 6.54% 5.28% Rolling six-month CPR speeds for all maturity buckets. Source: Colson Services

19 Page 19 GLS VALUE INDICES: HISTORICAL VALUES Table 2: MONTH Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 WAVG LIBOR 0.26% 0.26% 0.25% 0.25% 0.25% 0.26% 0.29% 0.41% 0.52% 0.46% 0.33% 0.28% 0.28% 0.27% 0.29% 0.29% 0.29% 0.30% 0.27% 0.24% 0.23% 0.24% 0.27% 0.32% 0.34% 0.41% 0.50% 0.44% 0.41% 0.44% 0.42% 0.43% 0.41% 0.39% 0.36% 0.33% 0.30% 0.29% 0.29% 0.28% 0.26% 0.26% WAVG BASE 3.24% 3.23% 3.26% 3.26% 3.24% 3.24% 3.24% 3.24% 3.23% 3.24% BASE LIBOR SPD 2.99% 2.99% 3.00% 2.99% 2.99% 2.99% 2.96% 2.84% 2.73% 2.80% 2.93% 2.97% 2.97% 2.98% 2.96% 2.96% 2.96% 2.95% 2.98% 3.01% 3.01% 3.01% 2.97% 2.93% 2.90% 2.84% 2.75% 2.81% 2.84% 2.81% 2.83% 2.81% 2.83% 2.86% 2.89% 2.91% 2.95% 2.95% 2.96% 2.97% 2.98% 2.99% INDICES LEGEND GLS VI GLS VI GLS VI GLS VI GLS VI GLS VI values for all maturity buckets for last 42 months. GLS VI HIGHEST READING LOWEST READING

20 Page 20 Y T D P R E PA Y M E N T S P E E D S Table 3: CPR/MO. Jan-13 Feb-13 Mar-13 Apr-13 Grand Total < % 9.77% 7.76% 10.44% 9.63% % 7.31% 6.29% 11.01% 8.98% % 10.53% 6.01% 7.11% 8.38% % 5.92% 6.78% 4.25% 5.89% % 6.33% 9.09% 4.11% 7.51% % 6.37% 4.92% 5.19% 5.77% ALL 7.84% 7.43% 5.57% 5.86% 6.67% 2013 monthly prepayment speeds broken out by maturity sector. Source: Colson Services Table 4: POOL AGE Jan-13 Feb-13 Mar-13 Apr-13 <8 27 Mos. 27 Mos. 27 Mos. 26 Mos Mos. 37 Mos. 38 Mos. 38 Mos Mos. 36 Mos. 36 Mos. 37 Mos Mos. 67 Mos. 68 Mos. 69 Mos Mos. 51 Mos. 49 Mos. 49 Mos pool age broken out by maturity sector. Source: Colson Services Mos. 48 Mos. 48 Mos. 48 Mos. ALL 46 Mos. 46 Mos. 45 Mos. 46 Mos.

21 Page 21 Y E A R - T O - D A T E C P R D A TA Table 5: < 8 BY AGE Jan-13 Feb-13 Mar-13 Apr-13 Grand Total 0-12 Mos. 4.23% 5.13% 2.30% 10.36% 5.73% Mos % 14.47% 13.48% 9.54% 12.05% Mos % 10.00% 4.27% 12.97% 12.38% Mos. 5.03% 8.51% 11.71% 8.51% 8.59% 48+ Mos. 7.88% 12.07% 11.20% 9.90% 10.27% BY AGE Jan-13 Feb-13 Mar-13 Apr-13 Grand Total 0-12 Mos. 5.19% 8.78% 3.44% 0.43% 4.42% Mos % 10.25% 10.36% 12.11% 11.31% Mos % 15.47% 7.47% 8.65% 12.97% Mos % 12.80% 4.15% 10.71% 9.97% 48+ Mos. 6.09% 8.92% 4.91% 6.77% 6.69% BY AGE Jan-13 Feb-13 Mar-13 Apr-13 Grand Total 0-12 Mos. 0.00% 0.00% 0.00% 0.00% 0.00% Mos % 1.11% 17.98% 9.11% 14.71% Mos % 11.33% 11.11% 5.42% 12.59% Mos. 8.62% 2.94% 10.10% 4.14% 6.44% 48+ Mos. 2.87% 10.08% 8.05% 3.55% 6.18% 8-10 BY AGE Jan-13 Feb-13 Mar-13 Apr-13 Grand Total 0-12 Mos % 1.59% 10.17% 6.84% 7.97% Mos % 8.12% 6.99% 20.19% 13.51% Mos % 6.14% 4.61% 17.91% 12.48% Mos. 3.82% 7.78% 3.05% 6.97% 5.43% 48+ Mos. 7.33% 10.91% 6.45% 9.82% 8.66% BY AGE Jan-13 Feb-13 Mar-13 Apr-13 Grand Total 0-12 Mos. 0.00% 0.00% 0.00% 0.00% 0.00% Mos. 4.32% 0.00% 9.49% 3.14% 4.25% Mos. 1.34% 19.17% 19.94% 0.00% 10.87% Mos. 2.31% 4.12% 11.28% 0.00% 4.70% 48+ Mos. 8.68% 6.13% 4.68% 6.31% 6.49% 20+ BY AGE Jan-13 Feb-13 Mar-13 Apr-13 Grand Total 0-12 Mos. 0.79% 1.23% 3.28% 0.96% 1.56% Mos. 8.14% 6.19% 4.60% 7.28% 6.53% Mos % 11.91% 5.73% 10.77% 10.07% Mos. 8.28% 11.04% 6.27% 7.00% 8.17% 48+ Mos. 7.05% 6.38% 5.39% 4.29% 5.77% 2013 YTD CPR by maturity and age bucket. Source: Colson Services

22 Page 22 Government Loan Solutions The nationwide leader in the valuation of SBA and USDA assets. GLS provides valuations for: SBA 7(a), 504 1st mortgage and USDA servicing rights SBA 7(a) and 504 1st mortgage pools Guaranteed and non-guaranteed 7(a) loan portions Interest-only portions of SBA and USDA loans In these times of market uncertainty, let GLS help you in determining the value of your SBA and USDA related-assets. For further information, please contact Bob Judge at (216) ext. 133 or at

23 Page 23 GLOSSARY AND DEFINITIONS: PAGE 1 Default-Curtailment Ratio The Default-Curtailment Ratio (DCR), or the percentage of secondary loan curtailments that are attributable to defaults, can be considered a measurement of the health of small business in the U.S. GLS, with default and borrower prepayment data supplied by Colson Services, has calculated DCRs for both SBA 7(a) and 504 loans since January, The default ratio is calculated using the following formula: Defaults / (Defaults + Prepayments) By definition, when the DCR is increasing, defaults are increasing faster than borrower prepayments, suggesting a difficult business environment for small business, perhaps even recessionary conditions. On the flip side, when the DCR is decreasing, either defaults are falling or borrower prepayments are outpacing defaults, each suggesting improving business conditions for small business. Our research suggests that a reading of 20% or greater on 7(a) DCRs and 15% or greater on 504 DCRs suggest economic weakness in these small business borrower groups. Theoretical Default Rate Due to a lack of up-to-date default data, we attempt to estimate the current default rate utilizing two datasets that we track: 1. Total prepayment data on all SBA pools going back to This is the basis for our monthly prepayment information. Total prepayment data on all secondary market 7(a) loans going back to 1999, broken down by defaults and voluntary prepayments. This is the basis for our monthly default ratio analysis. With these two datasets, it is possible to derive a theoretical default rate on SBA 7(a) loans. We say theoretical because the reader has to accept the following assumptions as true: 1. The ratio of defaults to total prepayments is approximately the same for SBA 7(a) pools and secondary market 7(a) loans. Fact: 60% to 70% of all secondary market 7(a) loans are inside SBA pools. The default rate for secondary market 7(a) loans closely approximates the default rate for all outstanding 7(a) loans. Fact: 25% to 35% of all outstanding 7(a) loans have been sold into the secondary market. While the above assumptions seem valid, there exists some unknown margin for error in the resulting analysis. However, that does not invalidate the potential value of the information to the SBA lender community. The Process To begin, we calculated total SBA pool prepayments, as a percentage of total secondary loan prepayments, using the following formula: Pool Prepay Percentage = Pool Prepayments / Secondary Loan Prepayments This tells us the percentage of prepayments that are coming from loans that have been pooled. Next, we calculated the theoretical default rate using the following equation: ((Secondary Loan Defaults * Pool Prepay Percentage) / Pool Opening Balance) * 12 This provides us with the theoretical default rate for SBA 7(a) loans, expressed as an annualized percentage. 2. GLS Long Value Indices Utilizing the same maturity buckets as in our CPR analysis, we calculate 6 separate indexes, denoted as GLS VI-1 to VI-6. The numbers equate to our maturity buckets in increasing order, with VI-1 as <8 years, VI-2 as 8-10 years, VI-3 as years, VI-4 as years, VI-5 as years and ending with VI-6 as 20+ years. The new Indices are basically weighted-average spreads to Libor, using the rolling six-month CPR for pools in the same maturity bucket, at the time of the transaction. While lifetime prepayment speeds would likely be lower for new loans entering the secondary market, utilizing six-month rolling pool speeds allowed us to make relative value judgments across different time periods. We compare the bond-equivalent yields to the relevant Libor rate at the time of the transaction. We then break the transactions into the six different maturity buckets and calculate the average Libor spread, weighting them by the loan size. For these indices, the value can be viewed as the average spread to Libor, with a higher number equating to greater value in the trading levels of SBA 7(a) loans.

24 Page 24 GLOSSARY AND DEFINITIONS: PAGE 2 Prepayment Calculations SBA Pool prepayment speeds are calculated using the industry convention of Conditional Prepayment Rate, or CPR. CPR is the annualized percentage of the outstanding balance of a pool that is expected to prepay in a given period. For example, a 10% CPR suggests that 10% of the current balance of a pool will prepay each year. When reporting prepayment data, we break it into seven different original maturity categories: <8 years, 8-10 years, years, years, years and 20+ years. Within these categories we provide monthly CPR and YTD values. In order to get a sense as to timing of prepayments during a pool s life, we provide CPR for maturity categories broken down by five different age categories: 0-12 months, months, months, months and 48+ months. As to the causes of prepayments, we provide a graph which shows prepayment speeds broken down by voluntary borrower prepayment speeds, denoted VCPR and default prepayment speeds, denoted as DCPR. The formula for Total CPR is as follows: Total Pool CPR = VCPR + DCPR SBA Libor Base Rate The SBA Libor Base Rate is set on the first business day of the month utilizing one-month LIBOR, as published in a national financial newspaper or website, plus 3% (300 basis points). The rate will be rounded to two digits with.004 being rounded down and.005 being rounded up. Please note that the SBA s maximum 7(a) interest rates continue to apply to SBA base rates: Lenders may charge up to 2.25% above the base rate for maturities under seven years and up to 2.75% above the base rate for maturities of seven years or more, with rates 2% higher for loans of $25,000 or less and 1% higher for loans between $25,000 and $50,000. (Allowable interest rates are slightly higher for SBAExpress loans.) Risk Types The various risk types that impact SBA pools are the following: Basis Risk: The risk of unexpected movements between two indices. The impact of this type of risk was shown in the decrease in the Prime/Libor spread experienced in 2007 and Prepayment Risk: The risk of principal prepayments due to borrower voluntary curtailments and defaults. Overall prepayments are expressed in CPR, or Conditional Prepayment Rate. Interest Rate Risk: The risk of changes in the value of an interest-bearing asset due to movements in interest rates. For pools with monthly or quarterly adjustments, this risk is low. Credit Risk: Losses experienced due to the default of collateral underlying a security. Since SBA loans and pools are guaranteed by the US government, this risk is very small. Secondary Market First Lien Position 504 Loan Pool Guarantee Program As part of the American Recovery and Reinvestment Act (AKA the Stimulus Bill), Congress authorized the SBA to create a temporary program that provides a guarantee on an eligible pool of SBA 504 first liens. The program was authorized for a period of two years from the date of bill passage February, The eligibility of each loan is dependent on the date of the SBA Debenture funding. To be eligible, the Debenture must have been funded on or after February 17, The total guarantee allocation is $3 Billion. HR 5297 provides for a two-year extension from the first pooling month, so that the end date of the program is now September, The SBA announced that they will begin issuing the first pool guarantees in September, 2010 for early October settlement. For the purposes of the program, a pool is defined as 2 or more loans. A pool must be either fixed (for life) or adjustable (any period adjustment including 5 or 10 years). If the pool is comprised of adjustable rate loans, all loans must have the same base rate (e.g. Prime, LIBOR, LIBOR Swaps, FHLB, etc.). Finally, each loan must be current for the lesser of 6 months or from the time of loan funding. Congress mandated that this be a zero subsidy program to the SBA (and the US taxpayer). The SBA has determined the program cost (management and expected losses) can be covered by an ongoing subsidy fee of.744% for fiscal year 2012.

25 Page 25 GLOSSARY AND DEFINITIONS: PAGE 3 SBA 504 Program and Debenture Funding To support small businesses and to strengthen the economy Congress created the U.S. Small Business Administration (SBA) in 1953 to provide a range of services to small businesses including financing. In 1958 Congress passed the Small Business Investment Act which established what is known today as the SBA 504 loan program. The 504 loan program provides financing for major fixed assets, such as owner-occupied real estate and long-term machinery and equipment. A 504 project is funded by a loan from a bank secured with a first lien typically covering 50% of the project s cost, a loan from a CDC secured with a second lien (backed by a 100% SBA-guaranteed debenture) covering a maximum of 40% of the cost, and a contribution of at least 10% of the project cost from the small business being financed. The SBA promotes the 504 program as an economic development tool because it is a small-business financing product that generates jobs. Each debenture is packaged with other CDC debentures into a national pool and is sold on a monthly basis to underwriters. Investors purchase interests in debenture pools and receive certificates representing ownership of all or part of a debenture pool. SBA uses various agents to facilitate the sale and service of the certificates and the orderly flow of funds among the parties involved. The debenture sales are broken into monthly sales of 20 year debentures and bi-monthly sales of 10 year debentures. It is the performance of these debenture pools that we track in the CPR Report on a monthly basis. Cloud Computing and the Banking Industry What is Cloud Computing? For many people and organizations, the term cloud computing is new and unfamiliar. However, it is a technology that has been used consistently since the 1950s. Many of us use cloud computing every day without even realizing it. Whenever we login to Facebook, send an from a Gmail account, or use an enterprise planning systems, such as Oracle and Salesforce.com, we are accessing the cloud. In simple terms, cloud computing means using hardware and software resources delivered as a service over a network. Most frequently, the network used is the Internet. Cloud-based applications are accessed through a web browser such as Microsoft s Internet Explorer and Google s Chrome, while data is stored on secure servers in custom designed data centers located throughout the United States and around the world. Businesses that use cloud computing enjoy many advantages, including an ability to get services and employees up and running faster because there is no software that needs to be downloaded and installed. Maintenance of cloud computing applications is easier, because the software does not need to be installed on each user's computer and can be accessed from multiple computers and devices. Proper cloud deployment can also provide the benefits of cost savings, better IT services, less maintenance, and higher levels of reliability. Cloud Banking As the banking industry evolves and adapts to changes in the competitive environment, banks will find it advantageous to move their data into the cloud. In fact, many banks are already in the cloud and just don t realize it, with data stored on Jack Henry and FIS systems. The combination of the cloud s low cost and high scalability will help improve customer service, day-to-day operations, regulatory compliance, and the speed at which banks can operate, while reducing technology equipment and management costs. Quite simply, cloud banking allows financial institutions to provide a more affordable and customized dialogue with their customers, regulators, employees and business partners. SBI Pool and IO Strip Indexes Through a joint venture called Small Business Indexes, Inc. or SBI, GLS and Ryan ALM introduced a group of total return indexes for SBA 7a pools and I/O strips with history going back to 1/1/2000. Why did we do this? Indexes have been around since 1896 when the Dow Jones Industrial Average was introduced. They have grown in importance to the financial markets, whereby today $6 trillion are invested in Index Funds throughout the world. Continued on the following pages.

26 Page 26 GLOSSARY AND DEFINITIONS: PAGE 4 SBI Pool and IO Strip Indexes...Continued The reasons for having investment indexes are fivefold: Asset Allocation Models: Asset Allocation usually accounts for over 90% of a client s total return and becomes the most critical asset decision. Such models use 100% index data to calculate their asset allocations. Bond index funds are the best representation of the intended risk/ reward of fixed income asset classes. Transparency: Most bond index benchmarks publish daily returns unlike active managers who publish monthly or even quarterly returns usually with a few days of delinquency. Such transparency should provide clients with more information on the risk/reward behavior of their assets so there are no surprises at quarterly asset management review meetings. Performance Measurement: Creates a benchmark for professional money managers to track their relative performance. Dictates Risk/Reward Behavior: By analyzing historical returns of an index, an investor can better understand how an asset class will perform over long periods of time, as well as during certain economic cycles. Hedging: An investment index can provide a means for hedging the risk of a portfolio that is comprised of assets tracked by the index. An example would be hedging a 7a servicing portfolio using the SBI I/O Strip Index. By creating investment indexes for SBA 7a pool and IO strips, these investments can become a recognized asset class by pension funds and other large investors who won t consider any asset class in their asset allocation models that does not have a benchmark index. An additional use for the I/O index could be to allow 7a lenders to hedge servicing portfolios that are getting large due to production and the low prepayment environment. This increase in exposure to 7a IO Strips would be welcome by IO investors who are constrained by the amount of loans that are stripped prior to being pooled. How are the indexes calculated? The rules for choosing which outstanding pools are eligible for both the pool and IO indexes are the following: Pool Size: $5 million minimum through 1/1/2005. $10 million minimum after 1/1/2005. Pool Structure: Minimum of 5 loans inside the pool. Minimum average loan size of $250,000. Pool Maturity: Minimum of 10 years of original maturity. Sub indices for years and year maturities. The rules for remaining in the indices are the following: Pool Size: Minimum pool factor of.25 Factor Updates in the Indices are on the first of the month, based on the Colson Factor Report that is released in the middle of the previous month. Pool Structure: Minimum of 5 loans inside the pool. We have produced two weightings for each pool in the various indexes, Actual and Equal : Actual weighted Indices: The actual original balance of each pool is used to weight the pool in the index. An index for all eligible pools, as well as one for years and one for years of original maturity. A total of 3 actual weighted sub-indices. Equal weighted Indices: An original balance of $10 million is assigned to each pool, regardless of its true size. An index for all eligible pools, as well as one for years and one for years of original maturity A total of 3 equal weighted sub-indices.

27 Page 27 GLOSSARY AND DEFINITIONS: PAGE 5 SBI Pool and IO Strip Indexes...Continued This equates to a total of (6 ) Pool sub-indices. We will refer to them on a go-forward basis as the following: Actual Weighting: All year in original maturity pools All Actual year in original maturity pools Short Actual year in original maturity pools Long Actual Equal Weighting: All year in original maturity pools All Equal year in original maturity pools Short Equal year in original maturity pools Long Equal Return Calculations Each index is tracked by its value on a daily basis, as well as the components of return. Income Component Daily return is calculated for the contribution of interest earned. Mark-to-Market Component Daily return is calculated for the contribution of Mark-To-Market changes. Scheduled Principal Component Daily return is calculated for the contribution of normal principal payments. Only impacts the first of the month. Prepayed Principal Component Daily return is calculated for the contribution of prepayed principal payments. Only impacts the first of the month. We have also added a Default Principal Component and a Voluntary Principal Component that, together, equate to the Prepayed Principal Component. This also only impacts the first of the month. Total Principal Component Daily return is calculated for the contribution of all principal payments. Only impacts the first of the month. The formula for Total Daily Return is as follows: Total Daily Return = Income Return + MTM Return + Principal Return The Principal Return is generated using the following formula: Principal Return = Prepayed Principal Return + Scheduled Principal Return The I/O Strip Indexes are a bit more involved, since we have to calculate the pricing multiple, as well as the breakdown between income earned and return of capital from interest accruals and payments. Here are the specific rules for the I/O Strip Indexes: The I/O Strip Indices utilize the same pools as the Pool Indices. Each pool is synthetically stripped upon entering the I/O Indices. For the equal and actual weighted indices and the maturity sub-indices (10-15 and 15-25), the pools are split into two even buckets utilizing the pool reset margins. The bucket with the higher margins we refer to as the Upper Bucket and the lower margin pools are in the Lower Bucket. The weighted average reset margin and pool MTM is calculated for each bucket. The MTM is the same one utilized in the pool indices. The weighted average price of the Lower Bucket is subtracted from the Upper Bucket. The same thing is done for the weighted average reset margin. The MTM difference is divided by the reset margin difference, giving us the pricing multiple by maturity and weighting. The end result is a pricing multiple for equal and actual weighting for year pools and year pools, totaling (4 ) distinct multiples. Not all interest received is considered earned income, therefore interest received by the stripped pools is divided into earnings and return of capital, utilizing OID accounting rules.