WASHINGTON –Senators John Kerry (D-Mass.) and Olympia J. Snowe (R-Maine) this week asked the Government Accountability Office (GAO) to conduct an investigation of the Small Business Administration’s (SBA) lender oversight system. In light of a recent Inspector General’s report that found “major weaknesses” in the SBA’s lender oversight, and detailed how the agency’s poor oversight of four lenders created a loss of $329 million for the SBA’s largest loan program, the Senators requested that the GAO examine the SBA’s system for monitoring SBA lenders’ portfolios and identifying risky lenders. Four years ago the GAO made recommendations for lender oversight improvement, yet the Administration has failed to enact appropriate changes.
“Despite warning signs that they don’t have the correct oversight mechanisms in place, the Bush Administration has done nothing significant to improve their lender oversight,” said Senator Kerry, Chairman of the Committee on Small Business and Entrepreneurship. “Since the string of reports by their own Inspector General hasn’t been enough to spur them into action, this investigation is a wakeup call to the Bush Administration to get safeguards in place to keep these important programs strong. Especially during these tough economic times, we need to ensure that our nation’s taxpayer dollars are invested wisely, and that our country’s small businesses have access to the credit they need to grow their business.”
“I am deeply concerned about the effectiveness of the SBA’s lender oversight and monitoring system.” said Senator Snowe, Ranking Member of the Committee on Small Business and Entrepreneurship. “As the SBA’s Office of Inspector General has cited lender oversight and loan agent fraud as two greatest challenges facing the Agency, as well as issued a report detailing how poor supervision of four lenders created a cumulative net loss of $329 million for the 7(a) loan program, it is clear that the status quo must rapidly change. That is why we are requesting that the Government Accountability Office analyze and make recommendations to improve the SBA’s lender oversight.”
The Inspector General report issued last month found that the SBA had “major weaknesses” in four crucial oversight activities: untimely reviews of loan purchases, insufficient examinations of lenders’ loan portfolios, inconsistent and inadequate implementation of corrective action plans, and poor remediation of bad loans. As a result, the Inspector General’s review of four of the SBA’s highest risk lenders found that the agency purchased over $239 million in guaranties on loans made by those lenders that failed to meet the performance benchmarks established by the SBA.
Senators Kerry and Snowe have actively pressed the SBA to improve their lender oversight system. Last month in a letter to the SBA, Kerry and Snowe questioned the wisdom of placing the lender oversight office within the SBA’s Office of Capital Access, the office which promotes the agency’s lending programs. Kerry and Snowe also criticized the SBA for moving forward with a proposed rule that the Senators believe is insufficient to improve lender oversight. In November 2007 and January 2008, Kerry and Snowe held hearings pressing the Administration to strengthen lender oversight in the wake of a $76 million fraud scheme involving loans originated by one of the SBA’s largest lenders, Business Loan Center, LLC (BLX).
To read the full text of the letter that was sent to the Acting Comptroller General of the United States Gene L. Dodaro of the GAO, please click here.