SBA Hot Topic Tuesday — OCRM Recommends Improvements for Risk Management and Lender Oversight

January 21, 2020

By Caity Witucki
Contributing Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — OCRM Recommends Improvements for Risk Management and Lender Oversight

A recent review conducted by OCRM found that the SBA did not always perform effective oversight of high-risk lenders to identify and mitigate risks. OCRM analyzed 32 defaulted 7(a) loans and found no evidence that lenders had corrected material deficiencies identified on 21 of the loans. Additionally, 5 lenders that did not receive reviews as planned had an average default rate of 19 percent for loans approved and disbursed in FYs 2015-2017. These lenders originated and dispursed $1 billion in loans during this period, in which $112.5 million were transferred to liquidation because the loans defaulted.

In addition, the review revealed:

  • OCRM did not conduct 30 percent of its planned high-risk lender reviews for FYs 2015-2017. As a result, SBA was exposed to an increased risk of financial loss and possessed a lack of program integrity.
  • OCRM did not periodically conduct an overall assessment of the high-risk lender review results to ensure analysts recommended appropriate actions and that the actions were consistent amongst the different analysts.
  • OCRM did not communicate 93 percent of its high-risk lender review results that included deficiencies to SBA approval and purchase loan canters.

As a result, OCRM has made the following recommendations to the Administrator:

  1. Develop policies for documenting the justification for not conducting planned reviews and identifying lenders for review.
  2. Develop and implement a comprehensive database to manage oversight of high-risk lenders and ensure the performance of all planned reviews.
  3. Provide clear and specific guidance to analysts regarding the appropriate corrective and enforcement actions for loan deficiencies.
  4. Conduct periodic overall assessments of the high-risk lender review results and recommendations.
  5. Develop policies that require OCRM to communicate systemic lender issues and material loan deficiencies to the appropriate SBA loan approval and purchase centers.
  6. Determine if the lenders corrected the deficiencies on the 21 loans purchased by the SBA. If not, require the lenders to bring the loans into compliance or seek recovery of the guaranty.

SBA OIG Report 20-03