medium · Asset-Backed Securities asset-nuances
A lender sells the guaranteed portion of an SBA 7(a) loan at a price of 108.
If the loan prepays immediately (Month 1), how does this affect the investor's yield compared to a loan that lasts its full 10-year term?
- The yield is unaffected because SBA loans have 100% lockout periods
- The yield increases due to the 'Special Allowance Payment' (SAP)
- The yield decreases significantly due to premium amortization
- The investor receives a 'Yield Maintenance' penalty that covers the loss
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