Audit Report 9-15: Disaster Home Loan Servicing Centers
Date Issued: Tuesday, August 3, 1999
Report Number: 9-15

On August 3, 1999, the OIG issued Audit Report 9-15, Disaster Home Loan Servicing Centers.  The objective of this audit was to determine whether the SBA followed collection procedures and used available liquidation tools to minimize loan losses.  The OIG audited disaster home loan servicing operations at the four servicing centers located in Alabama, Texas, New York, and California.  As of September 1997, the portfolio of disaster home loans consisted of 185,417 loans valued at about $3 billion.  Approximately 12,843 of these loans, valued at $179 million, were in a past due, delinquent, or in-liquidations status.  The OIG statistically sampled 432 of these loans, valued at $4.8 million, to determine whether the SBA followed collection procedures or performed liquidation actions intended to minimize losses.

In February 1998, the SBA established a goal to contact all delinquent borrowers weekly in order to improve the timeliness and consistency of collections actions.  Officials stated that as a result of staffing increases and the contracting of the servicing function for 30 percent of the loan portfolio, this goal was met as of February 1999.  As of that date, the reported percentage of past due borrower contacts increased to 100 percent (as opposed to 40 percent for fiscal year 1997).

The OIG found that collection procedures established to minimize losses on past due disaster home loans were not always followed by the SBA.  The procedures included contacting borrowers as soon as their loan became past due with contact continuing each week that the loan remained in that status.  Collections efforts, however, should cease after loans were past due for no more than 150 days, and liquidation activity should begin.  Some loans were then charged off without using all available collection tools.  Specifically, the OIG found that 1) actions to collect payments on past due loans needed improvement, and 2) Collection tools were not always used to recover loan losses.  The OIG made one recommendation.