Report 8-19 – Early-Defaulted Gulf Coast Disaster Loans

EARLY-DEFAULTED GULF COAST HURRICANE DISASTER LOANS

Report Number: 08-19

Date Issued: September 12, 2008

Prepared by the Office of Inspector General

U. S. Small Business Administration

U.S. Small Business Administration

Memorandum

Office of Inspector General

Date:September 12, 2008

To: Herbert L. Mitchell, Associate Administrator for Office of Disaster Assistance

Grady Hedgespeth, Director Office of Financial Assistance

/s/ Original Signed

From: Debra S. Ritt, Assistant Inspector General for Auditing

Subject: Audit of Early-Defaulted Gulf Coast Hurricane Disaster Loans, Report No. 08-19

This is the final report on our audit of Early-Defaulted Gulf Coast Hurricane Disaster Loans. We initiated the audit in response to the increasing number of defaulted Gulf Coast disaster loans processed by the Small Business Administration (SBA). The objectives of the audit were to determine whether Gulf Coast Hurricane disaster loans that failed within 18 months of the first due loan payment: (1) received adequate screening and credit evaluation during the application process; and (2) were serviced in accordance with loan provisions and regulations.

The audit objectives were accomplished through a review of 117 loan files, which were statistically sampled from 4,985 loans that were at least 90 days delinquent or charged-off as of September 30, 2007. To determine whether the loans received adequate screening and credit evaluation during the loan application process, we reviewed the Office of Disaster Assistance’s (ODA) repayment calculations and credit bureau reports for each applicant. To determine whether loans were adequately serviced, we compared loan collection actions taken within the first 60 days of delinquency to Office of Financial Assistance (OFA) servicing standards. We conducted site visits and interviews at the Fort Worth Disaster Assistance Processing and Disbursement Center (PDC), and the El Paso and Birmingham Loan Servicing Centers. We also interviewed ODA and OFA program officials and staff at the Buffalo Customer Service Center, and consulted with representatives from SBA’s Office of the Chief Information Officer.

To view the complete report, please see the attached document.