Evaluation Report 16-22: The OIG High Risk 7(a) Loan Review Program Recommends $3.2 Million in Recoveries

This report presents the results of our ongoing High Risk 7(a) Loan Review Program from April 2015 to September 2016 and an overall summary of our work to date.

OIG’s review of eight early-defaulted loans identified material lender origination and closing deficiencies that justified denial of the guaranty for three loans totaling $3.2 million.  To facilitate SBA’s timely review and recovery of these payments, we formally issued separate reports on each loan that included detailed descriptions of the identified material deficiencies.  We also identified suspicious activity on two purchased loans totaling $1.4 million, resulting in formal referrals to our Investigations Division.

To date, four loans that had material lender deficiencies or indications of suspicious activity financed change of ownership transactions.  In our judgment, change of ownership transactions continue to be an area of high risk for SBA.  Furthermore, four loans we formally reported on or referred to our Investigations Division were included in either SBA’s FY 2014 or FY 2015 reviews for improper payments.  SBA did not identify or report the improper payments totaling $4.5 million associated with these loans.

OIG recommended in previous management advisory memorandums that SBA require the lenders to bring the three loans into compliance or seek recovery of approximately $3.2 million.  SBA agreed with the recommendations and is working with the lenders.  In this report, we recommended that SBA evaluate the time National Guaranty Purchase Center (NGPC) loan specialists have to review complex early-defaulted loans involving change of ownership transactions.  SBA agreed with the recommendation and will conduct the evaluation.