Hot Topic Tuesday – OIG Investigated $335 Million in Loan Agent Fraud in the Last Decade

October 26, 2021

Delaney Sexton
Contributing Editor

Hot Topic Tuesday – OIG Investigated $335 Million in Loan Agent Fraud in the Last Decade

“Lenders often rely on the services of loan agents and lender service providers to help originate, close, service, and liquidate SBA loans of traditional SBA 7(a) and 504 Certified Development Company loans are originated by lenders with delegated approval authority. Our previous audits have found SBA has not adequately recognized or managed significant lender weaknesses,” reads the SBA Office of Inspector General’s recent report.

The fourth challenge outlined in the OIG report focuses on risk management and oversight practices that need improvement to ensure maintain the integrity of SBA loan programs. The OIG found that the SBA Office of Credit Risk Management did not always effectively oversee high-risk lenders and monitor their compliance with policies and procedures and take corrective action when needed. While the SBA has improved on this issue using data to identify and manage high-risk lenders, they need time to finalize the policies and procedures that address this issue. During this fiscal year, the SBA plans on developing a database to manage oversight of these lenders.

Another issue mentioned in the report is the increased risk caused by loan agents. There is a pattern of fraud associated with loan packagers and fee-based agents. In the last decade, the OIG investigated at least twenty-two cases of confirmed loan-agent fraud that totaled $335 million. Previous OIG reports found that the SBA has not effectively tracked loan agent involvement in loan portfolios. The loan agent disclosure form (Form 159) was improved to aid in this issue and can only be submitted electronically now.

The last issue mentioned in this challenge facing the SBA is the increased risk that is introduced by Lender Service Providers. Though it is not mentioned by name, the OIG report used the banc-serv trial as an example of this issue. As lender service provider involvement increases, it will continue to be important for the SBA to evaluate performance and reduce risks with LSPs. SBA has been working to develop a performance analysis report for LSP portfolios to identify any high-risk LSPs.

“Overall, the agency has made progress addressing this year’s list of management challenges,” says the SBA Inspector General, Hannibal Ware. “This progress is in large part attributed to the agency’s concerted effort to address outstanding internal control recommendations reflected in many of the component challenge corrective action areas.”

OIG Report