April 19, 2016

By Bob Coleman
Editor, Hot Topic Tuesday

SBA Hot Topic Tuesday — SBA OIG Says 68% of Early Default 7(a) Loan Guaranties Should be Repaired/Denied

SBA’s Inspector General continues its commitment to review SBA 7(a) loans over $500,000 that default within 18 months of approval.

In its April 2016 auditing division work plan the OIG writes:

OIG will conduct in-depth analyses of HD/ED 7(a) loans.

When OIG finds lender negligence, it will recommend recovery of the guaranty.

In addition, any indications of suspicious activity or fraud will be referred to OIG’s Office of General Counsel or Investigations Division for further action, as appropriate.

Previous SBA OIG audits identified material deficiencies in 68 percent of the HD/ED 7(a) loans reviewed, resulting in unnecessary losses to SBA.

In March 2015, we reported that seven early-defaulted loans identified material lender origination and closing deficiencies that justified denial of the guaranty for three loans totaling $1.8 million. To facilitate SBA’s timely review and recovery of these payments, we issued three notices of finding and recommendation that included detailed descriptions of the identified material deficiencies.

We recommended that SBA require the lenders to bring the three loans into compliance
and, if not possible, seek recovery of approximately $1.8 million from the lenders.