On March 20, 2006, the OIG issued Audit Report 6-16, Audit of an SBA Guarantied Loan. This report was one in a series of reports issued as a result of an on-going audit of the guaranty purchase process at the National Guaranty Purchase Center. During the audit, the OIG identified a problematic loan made by a lender that was part of a sample selected from a universe of 7(a) loan guaranties purchased by the Center from October 1, 2004, through May 31, 2005. The borrower in the loan is the subject of this audit report.
The loan was processed as a regular 7(a) guarantied loan; therefore, the SBA was responsible for determining if the borrower met eligibility and credit requirements based on documentation submitted by the lender. The lender was required to service and liquidate the loan in accordance with SBA regulations, policies, and procedures. The lender approved the subject loan for $175,000 on August 22, 1997 to pay for labor and materials on contracts that were assigned as security for the loan. The SBA disbursed the loan from November 21, 1997, through August 28, 1998. The borrower defaulted just one week after the final disbursement, on September 4, 1998.
The lender requested purchase of the loan on June 10, 2001, after completing loan liquidation. As of October 7, 2003, the SBA had not received sufficient documentation from the lender for purchase. The loan was transferred to the Center on February 12, 2004, and the guaranty was purchased for $113,221 on April 29, 2004. The OIG determined that the lender over-disbursed the loan on two occasions and that the SBA used the incorrect transcript to determine the purchase amount. These deficiencies were not detected during the guaranty purchase process, thus, the SBA erroneously paid the lender $18,992 when it purchased the guaranty for $113,221.
The loan authorization stated that no advance shall be made if, as a result of such advance, the total principal amount outstanding would exceed $175,000. On two occasions, however, the lender made advances that resulted in an outstanding principal balance that exceeded $175,000. As a result, the outstanding principal balance at the time of purchase was $138,260 or $16,656 higher than it should have been. Additionally, when computing the guaranty purchase amount, the SBA mistakenly used a September 3, 2003, transcript that showed the principal loan balance as $146,273. The lender submitted a revised transcript on October 1, 2003 that showed the principal loan balance as reduced to $138,260. The SBA should have used the revised transcript to compute the guaranty purchase amount. Because of these deficiencies, the SBA overpaid the lender by $18,992 when it purchased the guaranty. The OIG recommended that the SBA seek recovery of the guaranty.