Christopher J. Earle

Christopher Earle, first vice president and SBA department manager at NewAlliance, said it's not just big banks that need the secondary market to unfreeze.

NewAlliance Bank participates in the secondary market 'when market conditions justify it,' but hasn't sold any SBA loans in recent months, says Christopher Earle, first vice president and SBA department manager for the New Haven bank, which posted the highest dollar volume of SBA loans in Connecticut during the 2008 fiscal year.

'When lenders make SBA loans they are able to sell the guaranteed portion of the loan (typically 75 percent) to a secondary market, and that 75 percent is 100-percent guaranteed by the U.S. government, so it is in effect a Treasury security,' Earle explains.

'Secondary poolers pool these guaranteed loans into pieces of like terms and sell those off to investors,' he adds.

'Because the guaranteed portion is being paid a rate that is a commercial loan rate - generally prime plus something - in the past you were getting a higher rate as an investor if you bought a piece of one of those pools than you would on a normal government security, and due to that we would be paid a premium, anywhere from four to ten points.'

However, Earle adds, 'In the last few years the vast majority of secondary market investors stopped getting their funding sources with prime-based vehicles [such as SBA loans] and started going to the LIBOR (London Inter-Bank Offered Rate), which fluctuates more rapidly. Generally there was a 280-380 basis point spread between LIBOR and prime, and as long as that spread was there it didn't matter. But in the last three to four months that spread has fluctuated extremely and got down to a one point. The secondary market purchasers get their funding from LIBOR, but with rates at LIBOR being so high they stopped paying the premiums.'

As a result, Earle says, 'An awful lot of the non-bank lenders have shut down their operations or changed their lending criteria, and are not making loans, and particularly SBA loans. But well capitalized banks [such as NewAlliance] are still making loans.'

On November 13, the SBA announced two changes aimed reinvigorating the secondary market.

The first allows SBA lenders 'to peg the loans according to LIBOR, and have them fluctuate on a monthly basis,' Earle says. The second enables secondary market poolers to 'assemble weighted average coupon pools' consisting of loans with differing terms - a practice previously not permitted - thus creating 'more diversified and more stable' pools.

Despite the changes, Earle doesn't anticipate an increase in SBA lending before the end of fiscal 2009 next September 30.

In the meantime, he says, NewAlliance, at least, will be approving SBA-backed loans.

New Alliance Bank: Chris Earle, First Vice President, (203) 789-2822

"We had a goal of 500 walkers and $54,600," said Christopher J. Earle, First Vice President of NewAlliance Bank and Chairman of the 2007 Masonicare Quality of Life Walk, during opening ceremonies in the Great River Park Amphitheater.

Welcoming the new members were representatives from the Middle States Region of Phi Theta Kappa including President Christopher Earle, New Jersey State President Al-Muccadin Gravesande, Delaware State President Christine Topolewski and Alumni Association Immediate Past President Patricia VanAtter.