Deep Dive into Portfolio Management and the National Guaranty Purchase Center. Presented by: Susan Suckfiel and Vanessa Piccioni

Transcription

1 Deep Dive into Portfolio Management and the National Guaranty Purchase Center Presented by: Susan Suckfiel and Vanessa Piccioni

2 Overview 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

3 Which Center Will Review the Guaranty Purchase 3

4 Purchase Guidance 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 Specific to the GP Process Standard Operating Procedures SOP (a) Loan Servicing & Liquidation Chapters 23 and 24 4

5 When Will SBA Accept a Demand to Honor the Guaranty According to 13 CFR , 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

6 NGPC s Brand Promise NGPC will honor the guaranty within 45 days or less if the package is complete 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. 6

7 Helpful Purchase Tips 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! 7

8 Deadline for Submission 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. 8

9 Possible Outcomes of a Purchase 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. 9

10 The Four Facets of a Guaranty Purchase Review 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. 10

11 Guaranty Purchase Flow 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. 11

12 Guaranty Purchase Process Flow - The Life of a Purchase Package Intake Screening Legal 1 Financial Review Legal 2 Approver Customer Service 12 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.

13 How to Submit a Purchase Package 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 richard.geyer@sba.gov Stay tuned for SBA One 13

14 Regular 7(a) Guaranty Purchase Package Tabs Tab 1 Demand Letter Tab 6 Transcript of Account Tab 2 - Loan Authorization Tab 7 Early Default Tab 3 Eligibility Tab 4 Legal Documentation Tab 5 - Disbursements Tab 8 Reconciliation of Business Personal Property Collateral Tab 9 Collateral Disposition Tab 10 General Information 14

15 Tab 1 Making Demand 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. 15 You must include an explanation of the cause of the failure of the business.

16 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. 16 See NOTE on Recovery Act Loans

17 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. 17 If the loan is RA, you will place your eligibility certifications behind this tab.

18 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

19 Tab 4 Legal Documentation 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 Please provide the appropriate forms based on when your loan was originated. Review your Loan Authorization when completing this tab. 19

20 Tab 5 Use of Proceeds & Disbursements 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 20 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.

21 Tab 5 Use of Proceeds & Disbursements 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. 21

22 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 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 22 Do not charge off the guaranteed portion until the guaranty is purchased

23 23 Tab 6 Transcript of Account

24 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

25 Tab 7 Early Default Requirements Definition of an Early Default 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. 25

26 Tab 7 Early Default Requirements Equity Injection 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 26

27 Tab 7 Early Default Requirements IRS Verification and Credit Memo 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. 27

28 Tab 7 Early Default Requirements Egregious Repayment Analysis 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. 28

29 29 Tab 7 Early Default Requirements Egregious Error Income Statement

30 30 Tab 7 Early Default Requirements Egregious Error Cash Flow Analysis

31 Tab 8 and 9 Collateral Tabs 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 31

32 Tab 8 and 9 Collateral Tabs 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 32

33 Tab 10 General Information 33 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

34 Materiality 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 34

35 Top Reasons for Repair and Denial 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) 35

36 Top Reasons for Repair and Denial 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

37 Top Reasons for Repair and Denial 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 37 Failure to file Proof of Claim

38 Repair 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. 38

39 Denial of Liability SBA may be released from liability on its guarantee, in full or in part, for any reason set out in 13 CFR (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 39

40 Denial of Liability 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 40

41 41 Denial Process in Headquarters

42 Case Study #1 Improper PLP Processing 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,

43 Case Study #2 Program Integrity 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 43

44 Case Study #3 Financials Repayment Ability 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 44

45 Case Study #4 Environmental 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 45

46 Case Study #5 Debt Refinance 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. 46

47 Case Study #6 Misrepresented Ownership Guarantors Application shows Ownership = 41% - 41% - 18% Operating Agreement = 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 47

48 Case Study #7 Insurance 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. 48

49 Case Study # and 912 Issues 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 49

50 Case Study #9 Unexecuted Guarantees 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. 50

51 Case Study #10 Change of Ownership 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. 51

52 Unilateral Action Matrix 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. 52 Always check for the most recent version!!!

53 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. Servicing and Liquidation SOPs 7(a) Guaranty Purchase Denial/Litigation Resolution 504 Servicing and Liquidation Management SOP Disaster Loan Servicing and Liquidation SOP Loan Servicing and Liquidation SOP (a) Loan Servicing and Liquidation Review Exception to Policy and Interpretation to Policy requests Denial Cases Disputed Cases IPERA Cases IG Audit Cases Material Deficiency case review Authorized CDC Liquidators (ACL) renewals 53

54 Office of Portfolio Management Snapshot Federal Debt Collection Law Compliance Treasury Offset Division Recovery and Receivables Management Other Critical PM Functions 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 Report on Receivables (TROR) Member of OMB s Debt Goals Working Group Debt Management Service Treasury Do Not Pay Initiative Recovery of guaranty purchase funds Recovery of other receivables due from Lenders Billings for disallowed expenses Billings due to accounting issues Asset Sales Initiatives and Support Management of Computer Matching Agreement for CAIVRS Issuance of IRS Form 1099-C Credit Bureau Reporting 54

55 Other Tab Systems in the Centers Care and Preservation of Collateral and Legal Expense Reimbursements Offer in Compromises Litigation Plans Charge Off/Wrap Up Reports 55

56 Semi-Annual Status Reports 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 NGPCQuarterlyReports@sba.gov. 56

57 Prudent Liquidation Rule 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. 57

58 Prudent Liquidation Rule 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 (b)). 58

59 Prudent Liquidation Rule 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

60 Prudent Liquidation Rule 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

61 61 2-Year Rule Request Form

62 Best Practices 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 62 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.

63 How to Resolve a Loan 63 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

64 Charge Off Tabs 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 sbachargeoff@sba.gov or mail it to NGPC. New Charge Off Tabs are available online. Please use these tabs to prepare your wrap-up report. 64

65 Charge Off Tabs 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 65

66 Charge Off Tabs 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. 66 Bankruptcies we can charge off loans with open bankruptcies if there are no assets.

67 Charge Off Tabs 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. 67 Don t be afraid to ask us if you aren t sure!

68 68 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.

69 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

70 7(a) Approval / IPERIA After the sample pool is provided by the statistician, the Quality Control team s 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 s 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 s author. If you have a question, eric.camp@sba.gov. 70

71 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 cynthia.smith@sba.gov. 71

72 504 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 to Sacramento504QualityAssurance@sba.gov. 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

73 References Code of Federal Regulations 13 CFR 120, Subpart E SOP Chapter 3, Lender Responsibility and Authority (especially pages Chapter 23, Loan Guaranty Purchase Requests (pages ) - Chapter 24, Denial of Liability on 7(a) Guaranty Purchase Requests (pages ) - Chapter 26, Lender Wrap-up and SBA Charge Off Procedures (pages ) SBA Notice , Clarification of Wrap-up Report Deadline and Prudent Liquidation, effective 4/1/

74 Center Management 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

75 How to Contact Us National Guaranty Purchase Center 1145 Herndon Parkway Herndon, VA Phone: Toll Free: Fax: Center Hours: Monday-Friday, 8:00 am to 4:30 pm, Eastern Time Inquiries: general questions about liquidation secondary market questions status of purchase requests questions about guaranty purchases semi annual status reports and charge off tabs WEBSITE

76 76 Questions