Evaluation Report 15-09, The OIG High Risk 7(a) Loan Review Program Recommends $1.8 Million in Recoveries

On March 20, 2015, the OIG issued Report 15-09, The OIG High Risk 7(a) Loan Review Program Recommends $1.8 Million in Recoveries.  This report presents the results of our ongoing High Risk 7(a) Loan Review Program from July 2014 to February 2015. 

OIG’s review of 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 (NFR) that included detailed descriptions of the identified material deficiencies. 

Two of the three loans with material deficiencies financed change of ownership transactions.  We have previously identified change of ownership transactions as high risk.  We also identified material lender underwriting deficiencies (i.e. repayment ability) in all three loans.  In a previous audit, we determined that SBA’s limited reviews of lender underwriting resulted in improper payments.  In addition, the National Guaranty Purchase Center quality control team reviewed one of the three loans during the purchase review process, but did not identify any material deficiencies with the loan.  Further, this same loan was included in SBA’s FY 2014 review of improper payments, and was not identified as an improper payment.

OIG 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.  The Agency agreed with the recommendations and is working with the lenders to either bring the loans into compliance or recover the improper payments.