WASHINGTON, D.C. – During a Senate Small Business and Entrepreneurship Committee hearing today, U.S. Senator Olympia J. Snowe (R-ME) called on the Small Business Administration (SBA) to drastically improve its oversight over small business lenders to prevent loan fraud. As Ranking Member of the Committee, Snowe expressed her dismay that the SBA’s Inspector General (IG) has released 15 reports detailing serious problems with the agency’s oversight activities since Administrator Steven Preston assumed his position in July 2006.
November 13, 2007
“I find the SBA’s current oversight over lenders to be completely unacceptable,” said Senator Snowe. “For example, the SBA inappropriately allowed loan fraud and poor loan underwriting to occur at the Business Loan Corporation (BLX) where 76 fraudulent loans, totaling $76 million in loan guarantees, were made. I call on SBA Administrator Preston to dramatically improve the agency’s lender oversight to prevent escalating losses and fees from driving lenders and borrowers away from critical loan programs, which will seriously hamper the ability of small businesses to access needed capital.”
Noting that a recent SBA IG report identified a “high rate of deficiencies” in the agency’s loan review procedures, Snowe called on the SBA to enhance oversight over its 7(a) and 504 loan portfolios to improve the quality of lenders’ underwriting. Snowe added that such a process would involve: (1) effectively and thoroughly auditing lenders’ loan files during onsite reviews; (2) harnessing technology to help lenders meet the SBA’s underwriting requirements; and (3) streamlining the initial application and loan review process.
“It is an irrefutable, established truth that poor loan underwriting directly leads to loan defaults, fraud, and other deficiencies,” said Senator Snowe. “Although the SBA has recently undertaken a number of efforts to improve its lender oversight activities, these are stepsin the right direction, but they are no substitute for thestrides that are ultimately necessary. Simply put, not enough is being done, and the SBA, led by Administrator Preston, must make eliminating loan fraud a fundamental and absolute priority.”
Senator Snowe also noted that the SBA must increase the transparency of its oversight activities and measurements. Currently, the SBA does not provide lenders with much of the criteria the agency uses to determine whether portfolios are sound or substandard. This makes it difficult for lenders to know if they are meeting SBA lending standards.
“A lack of transparency hinders the SBA’s loan supervision capabilities and causes participating lenders to be justifiably critical of the agency’s ability to assess portfolio quality and conduct effective oversight,” said Senator Snowe. “That is why, earlier this month, I introduced, with Senator Kerry, the Small Business Lending Oversight and Program Performance Improvements Act of 2007 (S. 2288), which would codify the SBA’s standards for portfolio quality and enhance the transparency of measurements the SBA uses to evaluate lenders. This legislation must be passed this year to ensure that we eliminate deficient lender oversight once and for all.”
Finally, Senator Snowe expressed her concern that the SBA redacted portions of a recent IG report on the BLX before it was released to the public. Snowe called on SBA Administrator Preston and Inspector General Thorson to clarify how IG reports are made public.
“Just last month, a former BLX executive vice president pleaded guilty to defrauding the U.S. government, but the SBA redacted three of the Inspector General's five recommendations,” said Senator Snowe. “The SBA cannot expect Congress and the American people to have any faith in the agency when it so completely and utterly abrogates its oversight responsibilities. I call on Administrator Preston and Inspector General Thorson to develop procedures determining how reports are made public so that we can collectively dedicate our efforts to improving the SBA’s lender oversight.”