deep dive into portfolio management and the national...

Deep Dive into Portfolio Management and

the National Guaranty Purchase Center

Presented by:

Susan Suckfiel and Vanessa Piccioni

▪ 10-Tab Packages & the Purchase Review

▪ Common Reasons for Repairs and Denials

▪ Denial Case Studies

▪ Unilateral Action Matrix

▪ Overview of Portfolio Management

▪ CPC Tabs, OIC Tabs

▪ Litigation Plans

▪ Prudent Liquidation Rules

▪ Semi-Annual Status & Wrap-Up Reports

2

Overview

3

Which Center Will Review the Guaranty Purchase

▪Code of Federal Regulations

▪ 13 CFR 120 – Business Loans

▪ 13 CFR 120 Subpart E – Servicing, Liquidation and Debt

Collection Litigation of 7(a) and 504 Loans

▪ 13 CFR 120.520-524 – Specific to the GP Process

▪Standard Operating Procedures

▪ SOP 50 57 2 – 7(a) Loan Servicing & Liquidation

▪Chapters 23 and 24

4

Purchase Guidance

▪According to 13 CFR 120.520, a Lender may

demand in writing that SBA honor the guaranty

on a 7(a) loan if:

▪ The Borrower is in default on any installment for more than 60

calendar days;

▪ The default has not been cured; and

▪ All business personal property has been liquidated (for loans

approved on or after May 14, 2007)

5

When Will SBA Accept a Demand to Honor the Guaranty

• If we receive a complete, auditable, and reviewable 10-Tab package, NGPC will make a final decision on the outcome of the request within 45 days.

• Additionally, we value and engage our partners in the District Offices to assist lenders in preparing purchase packages and providing training.

NGPC will honor the guaranty within 45

days or less if the package is complete

NGPC’s Brand Promise

6

▪ Provide a complete package with executed tabs to ensure quick processing. Include all required documents and answer all questions on tabs.

▪ Some Lenders provide a synopsis of the “life of the loan.” Inform us proactively of missing documents and deficiencies so we don’t have to stop the process to ask.

▪ Build your loan file at origination using the 10-Tab system to ensure that all documents are present at origination.

▪ ALWAYS go the NGPC website to get up-to-date instructions and forms! http://www.sba.gov/for-lenders

Helpful Purchase Tips

7

http://www.sba.gov/for-lenders

▪ If SBA purchases the loan off the secondary market,

lenders MUST submit complete purchase package

within 45 calendar days of purchase.

▪For all loans, lenders must make demand for

guaranty purchase within 180 days after maturity or

180 days after completion of liquidation or litigation.

Deadline for Submission

8

▪ Purchase: Purchase request is complete, there is no harm to the Agency, and meets all criteria for honoring the payment in full. A decision to fund is reached within the 45-day Brand Promise.

▪ Repair: A decision is reached to honor the guaranty, but not in the full amount, due to a material deficiency during origination, closing, servicing, and/or liquidation.

▪ Denial: A decision is reached to deny the guaranty in full. This must have headquarters concurrence.

▪ Cancel/Terminate: Based on the facts of the case, the lender chooses to cancel or terminate the guaranty.

▪ Withdraw: Lender needs more time to collect documents and provide additional information, therefore withdraws the request. The guaranty is still in full effect and the purchase request can be made anytime thereafter.

Possible Outcomes of a Purchase

9

▪ Origination: Determine that the loan was originated in accordance with regulations and Standard Operating Procedures in place at the time of origination.

▪ Closing: Evaluate whether the loan was closed in accordance with the Loan Authorization.

▪ Servicing: Evaluate whether the servicing of the loan was in accordance with the loan documents, regulations, and prudent lending practices – and whether those actions caused harm to the Agency.

▪ Liquidation: Evaluate whether the liquidation and collection on the defaulted loan was prudent and followed program guidelines.

The Four Facets of a Guaranty Purchase Review

10

▪The SBA regulations established the “Rule of Two”

that all of the Centers must follow.

▪This requires that one SBA official make a

recommendation and another approve it.

▪We are also required to have an attorney review

each purchase request.

▪Every purchase request is reviewed by a minimum

of three SBA employees.

Guaranty Purchase Flow

11

Intake Screening Legal 1Financial

ReviewLegal 2 Approver

1 2 3 4 5 6

Customer Service

If a purchase package is complete it moves from step 1 through step 6 with no stops. If there are questions or

missing documents the package is sent to Customer Service to request additional information from the lender.

An L2 is only required when the loan is recommended for charge off at the time of purchase, or if a repair or denial

issue has been raised during the Legal 1 or Financial Review.

Guaranty Purchase Process Flow -The Life of a Purchase Package

12

▪ There are several ways to send a package:

▪Paper format via the mail

▪Electronic on CD via the mail

▪Electronic via Send this File

▪ Electronic is the preferred method, and using Send

This File is the most expeditious and reliable.

▪To get information on Send This File, visit our website

or contact our IT specialist at [email protected]

▪Stay tuned for SBA One…

How to Submit a Purchase Package

13

mailto:[email protected]

▪ Tab 1 – Demand Letter

▪ Tab 2 - Loan Authorization

▪ Tab 3 – Eligibility

▪ Tab 4 – Legal Documentation

▪ Tab 5 - Disbursements

• Tab 6 – Transcript of Account

• Tab 7 – Early Default

• Tab 8 – Reconciliation of

Business Personal Property

Collateral

• Tab 9 – Collateral Disposition

• Tab 10 – General Information

Regular 7(a) Guaranty Purchase Package Tabs

14

• Please read Tab 1 carefully and answer the

questions presented.

• Loan approved on or after May 14, 2007, must

have all business personal property liquidated

prior to guaranty purchase.

• The mandatory Demand Letter can be used for

pre-purchase demands as well as secondary

market purchase demands and post purchase

reviews.

• Please be sure you check the correct box to

ensure proper routing in the Center.

• Global certification feature designed to decrease

follow-up signature requests to lenders. Please

be sure that an authorized bank representative

signs the letter.

• You must include an explanation of the cause of

the failure of the business.

Tab 1 – Making Demand

15

Tab 2 – Loan Authorization

• The most important, required document in the

guaranty purchase process is the Loan

Authorization AND any Amendments

• Read this document carefully, as it will dictate

what documents will need to be provided later

• At this stage pay particular attention to

collateral taken, use of proceeds, lien positions,

and guarantors as they will be critical on later

tabs

•Include ANY loan modification documents as

well as deferments, workout agreements, interest

rate adjustments, and payment revisions. Center

staff only need to know that they occurred and

were properly executed. SBA generally will not

question prudent decisions by the lender if they

are documented and executed properly.

•Please be sure to include information on

companion loans.

•See NOTE on Recovery Act Loans16

Tab 3 – Eligibility Requirements

•Making an ineligible loan will result in a full

denial.

•The type of business dictates the

documentation that will be required.

•Please provide all required eligibility

checklists.

•If the loan was made to a franchise or

dealership, it must be on the franchise registry.

If not, you must provide a copy of the franchise

agreement to ensure it was an eligible franchise.

If it is on the registry, please provide a

certificate of no change.

•If the business sold fuel or gasoline, you must

provide a copy of the fuel supply or jobber

agreement.

•If the loan is RA, you will place your eligibility

certifications behind this tab.17

Tab 4 – Legal Documentation

• Tab 4 outlines the documentation

required for the majority of the Legal

Review.

•We must receive a copy of the original

Note with any modifications, amendments,

deferments, and workout agreements so

that the reviewer can determine the

original and current terms of the loan.

•Guaranties – a guaranty is required when

participation in the business is 20% or

more.

•Security Agreements

•UCC Lien Searches – you must be able to

prove to SBA with a post-default lien

position that you secured the correct

position. This is one of the causes for

repairs.

18

▪ Title Insurance and/or recorded Deeds of Trust/Mortgages are

mandatory where real property collateral is required. We use

it to determine if the lien position is correct.

▪ The purchase/sale agreement provided must be executed and

final.

▪ The Tabs have not been updated to reflect the changes in the

SOP from 912 to 1919 and 1920. Please provide the

appropriate forms based on when your loan was originated.

▪ Review your Loan Authorization when completing this tab.

Tab 4 – Legal Documentation

19

• SBA reviews the Settlement Sheets for

several reasons:

• Ensure loan was properly disbursed,

• Ensure proceeds were used in

accordance with the Loan

Authorization, and

• Ensure proceeds were used for

eligible purposes

• You must provide SBA with evidence to

support these reasons

• Evidence can include copies of cleared

checks, paid invoices, bills of sale, or

executed contracts

• Documentary evidence is always required

for each disbursement. For loans made

on or after 8/1/2008, only one settlement

sheet is required for the initial

disbursement.

Tab 5 – Use of Proceeds & Disbursements

20

▪ Avoid issues by never disbursing directly to the borrower. Use joint payee checks or pay the vendors directly.

▪ When the purpose of the loan is to refinance existing debt, be sure to have evidence that the existing debt was originally incurred for eligible business purposes.

▪ For Recovery Act Loans be sure you have the borrower certification for working capital proceeds, and that no proceeds were used for ineligible purposes as outlined in the Act.

▪ If the proceeds are to payoff an interim loan be sure to include the Note and evidence of use of proceeds for that loan.

Tab 5 – Use of Proceeds & Disbursements

21

Tab 6 – Transcript of Account

•SBA encourages the use of SBA Form

1149

•If the Lenders choose not to use the

1149, the transcript MUST contain all of

the of the information required on the

Form 1149. BIG SCREENOUT ISSUE

•It is critical to note the next payment due

date

•Also critical to indicate any/all

deferments or loan modifications

•Use the SBA loan number, not the

lender’s loan number

•Enter ALL payments and provide interest

paid “from” and “to” dates

•Show interest rate adjustments

according to the Note terms

•Do not charge off the guaranteed portion

until the guaranty is purchased22

Tab 6 – Transcript of Account

23

Tab 7 – Early Default Requirements

Definition of an Early Default

• Early Default means any of the

following events of default that

occurred either:

• (a) within 18 months of the

initial disbursement of the loan,

or;

• (b) within 18 months of the final

disbursement of the loan if the

final disbursement occurred

more than 6 months after the

initial disbursement,

• Unless the Borrower cured the

default and made the scheduled

loan payments for 12 months

following the 18 month period:

24

a) Failure to make a scheduled loan payment;

b) Funding a scheduled loan payment from the sale of collateral rather than from business operations;

c) Deferment of more than three consecutive scheduled full payments; or

d) Any other event of default that required the loan to be classified in liquidation status, e.g., bankruptcy.


Definition of an Early Default

25

▪ Pay particular attention to equity/asset injections, if required.

▪ The requirements vary for source be different based on when the loan was originated. We are seeing issues with sourcing.

▪ Injection is supposed to occur prior to disbursement

▪ If it occurs on or after disbursement the lender must clearly show that the injection did not come from loan proceeds

▪ Lenders can verify the injection with:

▪ Credit card receipts indicating items purchased for the business

▪ Paid invoices with vendor receipts or cancelled checks

▪ Copies of processed checks payable to the business and business bank statement showing the funds deposited

▪ Borrower bank statement that shows beginning and ending balances prior to loan disbursement, dated within 2 months of disbursement.

▪ Settlement Sheet or closing agent’s settlement statement dated and signed by borrower and closing agent.

▪ If a Standby Agreement was required as part of the injection, provide the Agreement and any resulting Notes


Equity Injection

26

▪ IRS Income Tax Verification

▪ The lender must provide copies of the IRS tax transcripts and the financial

statements and/or other financial information that was compared to the tax

transcripts in the credit analysis during the loan origination process

▪ If the business is a start-up, this is not required

▪ If you don’t have evidence that IRS transcripts were verified against financial

statements, provide an explanation as to what was used to verify the income of

the borrower

▪ A copy of the Credit Memorandum

▪ SBA reviews the credit memo and supporting documents to ensure that the

lender has acted prudently.

▪ Pay attention to the new credit elsewhere requirements in the credit memo.

▪ Cash flow/repayment ability will be examined in the credit memo to ensure that

the risk involved in making the loan was fully considered.


IRS Verification and Credit Memo

27

▪ Financial statements used by the lender were prepared by the borrower and not supported by any historical financials.

▪ Past 3 year cash flow showed decline from 27k to 25k to 23k. The current year 3 month actual was 26k cash flow (107k).

▪ Past 3 year Sales and Gross Profit were 116k, 112k, and 115k. 3 month actual was 54k. Annualized would be 216k in sales.

▪ Lender failed to include household expenses in calculations. The source of income for the household was the affiliate business.

▪ The 3 month actuals showed that the Operating Expenses were expected to increase from 92k to 108k.


Egregious Repayment Analysis

28


Egregious Error Income Statement

29


Egregious Error Cash Flow Analysis

30

▪ Lenders MUST itemize all collateral with a unit value of $5,000 or more.

▪ Lenders MUST reconcile all original collateral against list of post-default collateral

▪ If required, you must provide appraisals from origination and post default (at liquidation)

▪ Post default appraisal should be less than 120 days old and never more than 1 year old

▪ Provide Report of Sale of collateral or other disposition activity

▪ Abandonment of collateral MUST be justified and documented

Tab 8 and 9 – Collateral Tabs

31

▪ Lender MUST show evidence of attempts to secure and safeguard

collateral post-default and provide a post-default Site Visit Report

▪ Site Visit must be done within 60 days of uncured payment default or 15

days of adverse event

▪ Lenders MUST notify SBA if they will continue collections/servicing

actions-otherwise Treasury will continue collections against all guarantors.

▪ The majority of repairs come from mishandling of collateral.

▪ Failure to do a timely site visit

▪ Failure to perfect lien position

▪ Repair is only done if there is monetary harm to Agency as a result.

▪ Wrap-up Report or Status of Liquidation to Date

Tab 8 and 9 – Collateral Tabs

32

Tab 10 – General Information

▪ Wire Transfer Form is required to ensure prompt and correct payment

▪ This Tab should include any other documents relevant for guaranty purchase review or required by the loan authorization

▪ Phase 1 and/or 2 Environmental Reports must be included if applicable

▪ Care and Preservation of Collateral and Legal Expense Reimbursements

▪ Please note new requirement for fee refund verification on Recovery Act Loans

33

Materiality

▪ NGPC focuses on ‘material’ deficiencies that cause a significant loss or harm to SBA, or are a matter of program integrity

▪ Origination and Closing Actions

▪ Examples: Eligibility and franchise issues, Lack of equity injection (early defaults), missing IRS verification (early defaults), lack of evidence of disbursements

▪ Servicing Actions

▪ Examples: Improper subordinations, unjustified release of collateral or guarantors, lapse of liens, and Lender preference issues

▪ Liquidation Actions

▪ Lack of timely site visits after default or adverse event which causes a loss to the Agency

▪ Lack of comprehensive inventory at time of site visit which causes a loss to the Agency

▪ Failure to maximize recovery (deficient pursuit of collateral or obligors)

Burden of Proof – the burden of proof is always on the lender to prove that the deficiency is not material and did not cause the failure of the business

Materiality

34

▪ Lien and Collateral Issues that Result in Missed Recoveries

(Generally a Repair)

▪ Failure to obtain required lien position

▪ Failure to properly perfect security interest

▪ Failure to fully collateralize loan at origination when additional

collateral was available (in rare cases)

▪ Unauthorized Use of Proceeds

▪ Proceeds disbursed for purpose(s) inconsistent with the loan

authorization or subsequent modifications without a business

justification. (Could be a Denial if early default and improper use

of proceeds caused the failure of the business)

▪ Same lender Non-SBA loan paid with PLP loan proceeds

(preference)

Top Reasons for Repair and Denial

35

▪ Liquidation Deficiencies (Generally a Repair unless harm is the full value of the outstanding balance)

▪ Failure to conduct Site Visit which resulted in missed recoveries

▪ Improper safeguarding or disposition of collateral which resulted in missed recoveries

▪ Misapplication of recoveries to lender’s loan when SBA-guaranteed loan has lien priority

▪ Undocumented Servicing Actions (Generally a Repair)

▪ Liens not properly renewed during servicing on worthwhile collateral

▪ Release or subordination of collateral without documented business justification

▪ Allowing hazard insurance to lapse on major collateral and collateral was subsequently destroyed

▪ Failure to maintain life insurance on principal and principal subsequently dies


36

▪ Early Defaults (Denial if determined to be reason for business

failure)

▪ Missing or unsupported verification of required equity injection

(includes verification of source in some cases)

▪ Missing or unsupported documentation of verification of borrower

financial information with IRS when financial information was

relied on in lender’s credit analysis

▪ SBA Loan Eligibility (Denial)

▪ Ineligible business

▪ Ineligible loan purpose

▪ Ineligible loan recipient/borrower

▪ Release of Guarantors without SBA’s permission

▪ Failure to file Proof of Claim


37

▪ Repair = agreement between SBA and lender as to a specific dollar amount that will be deducted from purchase amount to fully compensate SBA for the actual or anticipated loss caused by the lender

▪ Repair amount = dollar amount of the loss caused by the lender X SBA’s guarantee percentage of loan

▪ Does not reduce the percent of the loan guaranteed by SBA or SBA’s pro rata share of expenses or recoveries

▪ Repairs cannot be negotiated, because they are directly aligned with material harm.

Repair

38

▪ SBA may be released from liability on its guarantee, in full or in part, for

any reason set out in 13 CFR 120.524(a); and may recover funds already

paid in connection with a guarantee purchase

▪ Generally, SBA only denies liability when lender’s actions or omissions

caused, or could cause, a material loss on the loan BUT . . .

▪ SBA may deny liability on a guarantee in the absence of a material loss if

lender’s misconduct is deemed material to the soundness and integrity of

the Loan Program, e.g., if

▪ Loan was ineligible for SBA financing

▪ Lender failed to disclose or misrepresented

a material fact to SBA

▪ Lender breached SBA’s conflict of interest regulations

Denial of Liability

39

▪Partial Denial of Liability = lender’s actions or

omissions caused, or could cause, a material, but

less than total, or near total, loss on the loan AND

lender does not agree to a repair

▪Full Denial of Liability = SBA’s determination that

lender’s acts or omissions are so serious as to

warrant non-payment of guaranty

Denial of Liability

40

Denial Process in Headquarters

41

▪ Lender refinanced its own debt

▪$350,000 interim loan for equipment purchase

▪Lender subsequently made a $2 million dollar loan that refinanced the interim loan.

▪SOP does not allow PLP processing to refinance same lender debt – unless it is an interim loan approved within 90 days of issuance of PLP loan number (CFR & SOP)

▪Delay caused by fire - Lender obtained PLP loan number 10 months after interim loan approval and closing

▪REPAIR for ineligible use of proceeds - $350,000.

Case Study #1 – Improper PLP Processing

42

▪ Bank officer was part owner of Commercial Real Estate

(CRE) developer

▪ Bank approved loans to CRE purchasers

▪ Potential conflict of interest should have been

disclosed to SBA via GP Processing.

▪ The Bank Officer was considered an associate

▪ FULL DENIAL

Case Study #2 – Program Integrity

43

▪ Early Default / Problem Loan

▪ Credit Memo disclosed multiple debts that were to be refinanced

▪ Final Authorization did not refinance all debts noted.

▪ Lender failed to include remaining debts in repayment analysis, therefore arriving at incorrect Debt Service Coverage Ratios.

▪ When re-spread, including all remaining debts, the loan did not cash-flow

▪ FULL DENIAL

Case Study #3 – Financials – Repayment Ability

44

▪ Gas station loan

▪ Phase 1 recommended additional testing

▪ Lender did not comply with professional recommendation in

the Phase 1

▪ Contamination discovered at default - Lender cannot prove

CRE was “clean” at closing – could be ineligible – FULL

Denial.

▪ If Lender is able to clean-up the CRE (at its expense), SBA will

consider a Repair based on appraisals and final sales price

Case Study #4 – Environmental

45

▪ Lender refinanced several debts of the Borrower

▪ Credit Card Debt and an existing loan with another Lender

▪ Lender failed to obtain credit card statements and evidence that

credit card debt was business related

▪ SBA could REPAIR for the amount disbursed to pay off credit card

debt.

▪ However, Borrower is now able to certify that debt was for business

purposes.

▪ SBA is able to honor the guaranty in full.

Case Study #5 – Debt Refinance

46

▪ Guarantors

▪Application shows Ownership = 41% - 41% - 18%

▪Operating Agreement = 33.3% - 33.3% - 33.3%

▪Lender failed to verify ownership

▪ “18%” owner actually owned 1/3

▪Unlimited Full Personal Guaranty required

▪ Individual has means and refuses to share financial

information

▪ FULL DENIAL

Case Study #6 – Misrepresented Ownership

47

▪ Life Insurance – loan to a sole proprietor

▪Failure to obtain life insurance

▪Borrower dies

▪FULL DENIAL – unless the life insurance was for less than the outstanding balance – then a REPAIR for the value of the life insurance.

▪ Hazard Insurance –

▪CRE is destroyed in a fire.

▪Lender has no recovery – because Hazard Coverage was not obtained as required.

▪REPAIR for the liquidation value of the CRE – harm to SBA.

Case Study #7 – Insurance

48

▪ Principal answered “No” to questions 7, 8 & 9 on SBA Form 912,

Statement of Personal History

▪ Principal actually had convictions for 2 misdemeanors (sexual

assault) in 1993 and had a felony arrest (battery) in 2002 (charges

dropped)

▪ Lender performed criminal background search prior to closing – no

records found

▪ Lender discovers misrepresentation on a subsequent conventional

loan application

▪ Guaranty is honored – BUT… An IG referral did happen

Case Study #8 – 1919 and 912 Issues

49

▪ Lender is unable to provide evidence of executed

Guarantees on multiple guarantors said to secure

the loan in the Loan Authorization.

▪Full Denial of Liability for full harm as the collection

of the loan balance cannot be enforced and

guarantors cannot be pursued.

▪This applies during Charge Off as well. If guarantors

are released, there is FULL harm to SBA and a full

recovery will be pursued.

Case Study #9 – Unexecuted Guarantees

50

▪ Loan to fund a change of ownership

▪Purchase Agreement stipulates that former owner will consult for 24-months will be compensated $3000 a month.

▪FULL DENIAL – SOP only allows for 12-month agreements with seller.

▪ Lenders often try to avoid change of ownership requirements by presenting as start up – SBA knows the difference….

Case Study #10 – Change of Ownership

51

•The two servicing centers, NGPC,

and HQ work together to keep the

Unilateral Action Matrix current.

•It is designed to assist lenders in

understanding if actions require

SBA approval, SBA notification, or

are unilateral.

•As long as the actions you take are

documented, prudent, are within

your unilateral authority, and don’t

cause harm to the Agency, the

Center will generally not be

concerned with them at the time of

purchase.

•Always check for the most recent

version!!!

Unilateral Action Matrix

52

Servicing and Liquidation

SOPs

• SOP 50-52 Disaster Loan Servicing and Liquidation

• SOP 50-55 504 Loan Servicing and Liquidation

• SOP 50-57 7(a) Loan Servicing and Liquidation

• Review Exception to Policy and Interpretationto Policy requests

7(a) Guaranty Purchase

Denial/Litigation Resolution

• Denial Cases

• Disputed Cases

• IPERA Cases

• IG Audit Cases

504 Servicing and Liquidation Management

• Material Deficiency case review

• Authorized CDC Liquidators (ACL) renewals

Office of Portfolio Management Snapshot

The Office of Portfolio Management is responsible for the management and compliance

of the SBA’s $113.5 billion portfolio of direct and guaranteed loans.

53

Federal Debt Collection Law

Compliance

• OMB Circular A-129 Policies for Federal Credit Programs and Non-tax Receivables

• Treasury Guide to Managing Federal Receivables

• Debt Collection Improvement Act of 1996 (DCIA)

• Data Act

Treasury Offset Division

• Treasury Report on Receivables (TROR)

• Member of OMB’s Debt Goals Working Group

• Debt Management Service

• Treasury Do Not Pay Initiative

Recovery and Receivables Management

• Recovery of guaranty purchase funds

• Recovery of other receivables due from Lenders

• Billings for disallowed expenses

• Billings due to accounting issues

Other Critical

PM Functions

• Asset Sales Initiatives and Support

• Management of Computer Matching Agreement for CAIVRS

• Issuance of IRS Form 1099-C

• Credit Bureau Reporting

Office of Portfolio Management Snapshot

54

▪Care and Preservation of Collateral and Legal

Expense Reimbursements

▪Offer in Compromises

▪Litigation Plans

▪Charge Off/Wrap Up Reports

Other Tab Systems in the Centers

55

▪ Lenders are responsible for keeping SBA informed

of liquidation activities after purchase by submitting

a status report every 6 months.

▪NGPC will send each Lender a list of their

purchased but not charged off loans in October and

March of each year.

▪Please complete the report by selecting the most

appropriate status and return to NGPC at

[email protected].

Semi-Annual Status Reports

56


▪Prudent Liquidation means Lenders must liquidate

and conduct debt collection litigation for 7(a) loans in

their portfolio no less diligently than for their non-

SBA portfolio, and in a prompt, cost-effective and

commercially reasonable manner, consistent with

prudent lending standards, and in accordance with

Loan Program Requirements and with any SBA

approval of either a liquidation or litigation plan or

any amendment of such a plan.

Prudent Liquidation Rule

57

▪ Lenders that do not maintain a non-SBA loan

portfolio must adhere to the same prudent lending

standards followed by commercial lenders that

liquidate loans without a government guarantee.

▪They must also operate in accordance with Loan

Program Requirements and with any SBA approval

of either a liquidation or litigation plan or any

amendment of such a plan. (13 C.F.R. §120.535(b)).


58

▪ “Prudent Liquidation also means that a Lender submits a Wrap-Up Report acceptable to SBA on an SBA loan no later than either 24 months from SBA guaranty purchase date or 24 months after the effective date of this SOP (12/1/15) for loans where SBA has previously honored the guaranty and lenders are actively liquidating, whichever is longer, unless a written extension is granted by SBA from the applicable timeframe based on extenuating circumstances.” (See Chapter 23, Paragraph J,

for more information on Extensions to the Prudent Liquidation Deadline”).


59

• Once SBA has purchased the guaranty of a loan, lenders have 24 months to complete all liquidation activity, or request an extension from SBA.

• If the guaranty was honored prior to 12/1/15, the lenders have 24 months from that date to complete liquidation of they were actively liquidating at the time.

• If SBA deems that the lender has not been prudently liquidating, SBA will demand the lender repay the guaranty.

• Referral to OCRM which could result in and oversight action


60

2-Year Rule Request Form

61

▪ SBA strongly encourages lenders to wait to submit a guaranty purchase request until the loan is ready for charge off.

▪ If the lender submits a Wrap-up Report acceptable to SBA concurrently with its guaranty purchase request –

▪ SBA will collect the ongoing guaranty fee for a maximum of 120 calendar days from the last interest paid to date and “0” percent thereafter

▪ Avoid worrying about the 2 Year Rule

▪ You only have to make one submission that includes everything

▪ SBA only has to look at it once.

Best Practices

62

▪What Constitutes Resolution?

▪ Returning a loan to Regular Servicing

▪Requires executed workout agreement

▪The new SOP no longer requires a payment history

▪ Loan Paid-in-Full

▪Requires that SBA’s system also show a zero balance

▪ If the loan is on your SAR – it is NOT PIF

▪ Charge Off

▪Charge Off Tabs are due within 30 calendar days of completion of all collection activities

How to “Resolve” a Loan

63

▪ When you are satisfied that all collection efforts have been exhausted and liquidation is complete, you must notify the Center immediately so that we can charge-off the loan.

▪ Our goal is to charge-off a loan as soon as it is ready. We rely on our Lending Partners to keep us informed of the status of each of their loans.

▪ When you believe a loan is ready for charge-off, please prepare and submit a final wrap-up report to [email protected] or mail it to NGPC.

▪ New Charge Off Tabs are available online. Please use these tabs to prepare your wrap-up report.

Charge Off Tabs

64


▪ Narrative discussing recovery and collection efforts

▪ Site Visit Report

▪ Current Certified Transcript

▪ Listing of all recoveries applied to the loan

▪ Listing of the disposition of all collateral

▪ Listing of the obligors and their status

▪ Discussion of abandonment of any collateral

▪ Assignment Form

▪ Treasury Referral

▪ Summary of Outstanding Expenses to be resolved

Charge Off Tabs

65

▪ The purpose of the Wrap Up Report is to prove to SBA that the loan is fully liquidated and that the lender has completed all activity.

▪ When preparing the package, be sure you are providing all evidence to support that the loan is fully liquidated.

▪ Additionally, SBA has to see that ALL recoveries have been shared with the Agency. Therefore, we must have evidence of how much collateral was sold for, and the subsequent application of funds to the loan.

▪ Bankruptcies – we can charge off loans with open bankruptcies if there are no assets.

Charge Off Tabs

66

▪ Bankruptcies – we can charge off loans with open bankruptcies if there are no assets.

▪ For loans with approved OICs, where the only outstanding issue is the ongoing payments, SBA can set up a Note Receivable and charge off the original loan.

▪ For loans with bankruptcy plans, we can consider doing the above, or returning the loan to regular servicing, depending on the situation.

▪ Don’t be afraid to ask us if you aren’t sure!

Charge Off Tabs

67

IPERIA Audit

Improper Payments Elimination and Recovery Improvement

Act of 2012

Loans selected as part of the IPERIA audit must undergo a

thorough financial and legal review to examine whether the

Lender/CDC complied materially with the 7(a) & 504 program

requirements including statutory provisions, SBA

regulations/SOP’s, loan authorizations, and official notices and

forms applicable to the 7(a) and 504 programs.

68

IPERIA Logistics

▪ A random sample of loan purchases for 12 months ending

March 31, validated by a contractor-statistician, is reviewed for

potential improper payments to Lenders each year. The results

of this targeted review for potential improper payments are

reported annually in SBA’s Agency Financial Report.

▪ The Quality Control Specialist will reach out to the Lender/CDC

to obtain additional information or notify the Lender/CDC of an

improper payment (over/under payment)

69

7(a) Approval / IPERIA

▪ After the sample pool is provided by the statistician, the Quality Control

team emails the Lender and to request their complete loan file used to

approve the loan. Lender uploads via the usual “Send This File”.

▪ Loan files are reviewed to ensure: 1) it is properly documented, 2) eligibility

was established, and 3) The credit decision was prudent.

▪ Quality Control emails Lender with the results. If any ‘critical’ finding,

lender is given a chance to address and resolve. If not, our Guaranty may

be revoked and/or a referral to OCRM (Office of Credit Risk Management)

is made.

▪ If any questions, lender responds to the email’s author. If you have a

question, email [email protected] .

70


7(a) Purchase / IPERIA

▪ After the sample pool is provided by the statistician, the Quality Control

team conducts the audit.

▪ If a potential improper payment is identified, the lender is contacted by the

IPERIA Reviewer or QC Specialist and additional information is requested

to remedy the deficiency.

▪ If the deficiency cannot be cured, the Quality Control team will correct the

confirmed overpayment or underpayment. If the Lender does not agree

with the finding, the file is routed to HQ PM staff for further review.

▪ If a Lender has any questions related to an audit finding, they should

respond directly to the QC reviewer requesting the information or to

[email protected].

71


504 Approval / IPERIA

▪ After the sample pool is provided by the statistician that includes ASM and non-ASM

submissions as well as PCLP submissions.

▪ Quality Control will request a full file from CDCs who submitted a loan through the ASM or

PCLP submission process and will notify CDCs who already submitted a full file at the time

of original submission (non- ASM submission).

▪ If a CDC has any questions related to an audit finding, it can respond directly to Quality

Control by sending an email to [email protected].

▪ Important Note: The IPERIA audit is handled by the Quality Control Specialist, who

operates independently from the Sacramento Loan Processing Center. Any questions

should be directed to the QC Specialist and not to the Sacramento Loan Processing

Center.

72


References

▪ Code of Federal Regulations – 13 CFR 120, Subpart E

▪ SOP 50 57 2 –

▪ Chapter 3, Lender Responsibility and Authority (especially pages 29-

30

▪ Chapter 23, Loan Guaranty Purchase Requests (pages 138-144)

- Chapter 24, Denial of Liability on 7(a) Guaranty Purchase Requests

(pages 145-151)

- Chapter 26, Lender Wrap-up and SBA Charge Off Procedures (pages

157-161)

• SBA Notice 5000-1378, Clarification of Wrap-up Report

Deadline and Prudent Liquidation, effective 4/1/2016

73

▪ Vanessa Piccioni, Director

▪ Neil Miller, Deputy Director

▪ Leslie Klam, (A) Asst Center for Guaranty Purchase

▪ Debbie Lester, Asst Director for Portfolio Resolution

▪ Kevin Hardy, Asst Director for Center Operations

▪ Saeda Siam (Acting) Center Counsel

▪ Portfolio Management

▪ Susan Suckfiel, Chief of Portfolio Management

74

Center Management

National Guaranty Purchase Center

1145 Herndon Parkway

Herndon, VA 20170

Phone: 703-487-9283

Toll Free: 877-488-4364

Fax: 703-487-9944

Center Hours: Monday-Friday, 8:00 am to 4:30 pm, Eastern Time

Email Inquiries:

[email protected] – general questions about liquidation

[email protected] – secondary market questions

[email protected] – status of purchase requests

[email protected] – questions about guaranty purchases

[email protected] – semi annual status reports and charge off tabs

WEBSITE - http://www.sba.gov/for-lenders

How to Contact Us

75





http://www.sba.gov/aboutsba/sbaprograms/elending/ngpc/index.html

http://www.sba.gov/for-lenders

Questions

76

deep dive into portfolio management and the national...

Documents