We’ve all caught the headlines in our email: OIG’s Audit of SBA’s Oversight of High-Risk Lenders, published last month, sure got our attention. Big news: OIG came down hard on OCRM regarding its oversight of high-risk lenders. I’ll bet many of you thought “Oh well, that’s High-Risk Lenders. That’s not me.” You’re probably right. Yet we believe it’s important to know what OCRM looks at, and how and when they’re looking so lenders can take the necessary steps to eliminate program and portfolio deficiencies and ensure their guarantees.

We’re offering up some insights after looking back at our client interactions over the past months, recent OCRM oversight actions, and a session at October’s NAGGL Conference. Here goes:

Questions OCRM often asks:  Why did you think an item wasn’t required?  Why didn’t you get the item if you knew it was required? Your file needs to reflect your analysis and justification for the actions you take that alter the Authorization (e.g., life insurance, waiver, collateral release, etc.) When an action requires SBA approval you must show your work, as you should for delegated actions.

Common findings in OCRM Reviews:

  • Lenders are not meeting the EPC/OC requirements. Check your occupancy, use of proceeds, and lease agreements as these are common errors lenders make in this area that lead to a repair or denial.
  • Debt Refinancing continues to be a top finding with lenders not obtaining proof of the original use of proceeds and promissory notes to support the original loan’s eligibility for refinance.
  • Equity Injection has always been a top finding in reviews. We recommend having a system in place documenting that the injection occurred prior to or at the time of funding — and importantly that it was properly sourced with 2-3 months of bank statements. Review of the statements should find that the monthly average balance equals or exceeds the amount required. If it doesn’t, but the most recent month’s balance does, then it’s important to track the source of that influx of funds. SBA will. Guaranteed!
  • Lien perfection. Timely filings of your UCC filings and terminations of filings refinanced are essential to lien perfection and often where issues occur.
  • Post Default Site Visits – 15 days with an Adverse Event or 60 days of payment default are required. Just performing site visits isn’t enough. You need to document them with a memo or form in the file noting your findings. Photos are highly recommended.

Bottom line: If OCRM is getting pressure on its oversight you know that their findings are also scrutinized. It’s important to the integrity of your program – and the overall SBA program – to make sure you’re doing everything possible to ensure the safety and soundness your loan guarantees.

Rebecca Mendoza
Senior Associate