Senators call for investigation into SBA lender review program

Sens. John Kerry, D-Mass., and Olympia Snowe, R-Maine, requested on Friday a Government Accountability Office investigation into the Small Business Administration's lender oversight system. A report from the SBA inspector general released in May found major weaknesses in the program, which is designed to assess loan risks and ensure high-quality lending for small businesses.

The IG report showed significant weaknesses in four crucial oversight areas: timely reviews of loan purchases, sufficient examination of lenders' loan portfolios, consistent and adequate implementation of corrective action plans, and remediation of bad loans. The report noted that as a result of oversight failures SBA had purchased more than $239 million in guaranties on loans made by four high-risk lenders that failed to meet established performance benchmarks.

Kerry and Snowe, the chairman and ranking member of the Senate Small Business and Entrepreneurship Committee, said they were concerned about the effectiveness of SBA's lender oversight and monitoring system now more than ever.

"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," Kerry said.

Kerry and Snowe said GAO has made recommendations for improving lender oversight in the past, but SBA has failed to enact appropriate changes.

"It is clear that the status quo must rapidly change," Snowe said.

In a letter to acting Comptroller General Gene Dodaro, the senators asked that GAO investigate the loan and lender monitoring system SBA has used for the past five years and report on the extent to which the system has created improvements, cost savings and enhanced oversight for SBA's loan programs. The committee specifically is requesting information on the system's reliability in assessing and predicting lenders' portfolio performance and how SBA's monitoring and risk rating systems compare with industry best practices.

In addition to an assessment and recommendations on the monitoring system, the senators are concerned with how SBA incorporates the results of its monitoring and risk prediction processes. The lawmakers requested that GAO follow up and conduct on-site examinations of lender practices or other oversight of high-risk lenders.

This is not the first time Kerry and Snowe have expressed concern over SBA's lending programs. In May, they sent a letter to then-SBA administrator Steven Preston requesting information on the program and questioning the placement of lender oversight within the SBA's Office of Capital Access, which was charged with promoting lending programs. The Small Business Committee held hearings in November 2007 and January 2008 pressing the agency to strengthen oversight in the wake of a $76 million fraud scheme involving loans from one of SBA's largest lenders, Business Loan Center LLC.