Secondary Market Access (SMA) — a consortium of CDCs and financial companies — has begun operations to purchase SBA-504 first mortgages for sale into the secondary market. SBA-504 first mortgage lenders are now able to sell 85% participation interests of individual loans to pool originators through SMA. Spearheaded by CDC Direct Capital and Government Loan Solutions, SMA will source transactions, provide bids, package, underwrite and facilitate funding on behalf of the investment bank or pool originator.
“This new program offers banks multiple benefits, including premium income, servicing income, capital relief and improved credit quality,” said Jordan Blanchard of CDC Direct Capital. “In addition, as the loan servicer, banks will retain their relationship with their small business customers.”
At NADCO’s annual meeting, Ana Ma, chief of staff for SBA Administrator Karen Mills, announced that the first loan pools are expected to be ready for sale by July 15, 2010. To be eligible, the 504 debenture of each loan must have funded on or after February 17, 2009; however, the first mortgages that funded in 2007 or 2008 could still qualify.
When the SBA announced the creation of the secondary market program last year, SBA Administrator Karen Mills said, “This new program will stimulate activity in the secondary market, ensuring lenders have a place to sell first-mortgage loans on their books and in turn have liquidity to make more loans to small businesses. This is another tool in our Recovery toolbox that will expand access to the capital small businesses need to drive economic growth and create jobs.”
The SMA consortium was organized to provide banks with easy access to the new program throughout the United States. “We are watching this very carefully,” said Michael D. Sneden of ValueXpress. “If this program is successful, it will provide another avenue for premium income and reduced balance sheet exposure for our banking partners, similar to the benefits of the SBA 7(a) program. As a small firm we and our partners can jump into this market right away if it is successful.”