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7(a) Servicing & Liquidation Policy Updates in SOP 50 57
(including Technical Corrections and the Matrix!)

(Margherita Stutz & Jane Butler)

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June 3-7- Dallas, TX

SBA Loan Servicing & Liquidation; Advanced SBA Loan Servicing and Liquidation

August 19-22: Stockton, CA

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Electronic Fingerprints - 5000-1265

Line of Credit Coding Error when using E-Tran
5000-1268

Technically Corrected SOP 50 57 Available
NEW Servicing & Liquidation Matrix (updated May 9)

Based on a great deal of input from the industry, including many suggestions for clarification from NAGGL, SBA released an update to SOP 50 57 containing 'technical corrections', all of which are outlined in the accompanying Information Notice 5000-1276 -- and as we discussed in several breakout sessions during our 2013 SBA Lending Technical Conference in St Louis.

A few notable changes:

• Loan status determines governing SOP

• Approved = pre-closing and FINAL disbursement = SOP 50 10
• Regular Servicing = loan closed and FINAL disbursement =  SOP 50 57
• Liquidation = loan in default and classified as 'in liquidation' = SOP 50 57

• Added requirement (based on OMB Circular A-129) that lenders report to credit agencies loan activity throughout the life of the loan.
  
  SOP 50 57 page 30 reads: "In accordance with the Debt Collection Improvement Act of 1996, Lenders are required to report information to the appropriate credit reporting agencies whenever they extend credit via an SBA loan. Thereafter, they should continue to routinely report information concerning servicing, liquidation, and charge-off activities throughout the life-cycle of the loan. (See Chapter 26 for more information regarding credit reporting requirements for loans in charge-off status.)"   
  
  This was the final addition to the 'corrected' SOP and one that generated a great deal of unanswered questions and discussion during the conference and in subsequent days. NAGGL is gathering and digesting information on the requirement and its impact on SBA lenders and will provide clarification in the future.  For now, it's important to note that the 52-page OMB Circular A-129 reads in part: "Referring account information to Credit reporting agencies. Agency servicing systems must be able to identify and refer debts to credit bureaus in accordance with the requirements of 31 U.S.C. § 3711. Agencies shall refer all non-tax, non-tariff commercial accounts (current and delinquent) and all delinquent non-tariff and non-tax consumer accounts. ...The reporting of current data (in addition to any delinquencies) provides a truer picture of indebtedness while simultaneously reflecting accounts that the borrower has maintained in good standing. There is no minimum dollar threshold, e.g., accounts (debts) owed for as low as $5 may be referred to credit reporting agencies. Agencies shall require lenders participating in Federal credit programs to provide information relating to the extension of credit to consumer or commercial credit reporting agencies, as appropriate. For additional information, agencies should refer to Treasury/FMS Guide to the Federal Credit Bureau Program."     
• Updates/Clarifies order of application of payments on loans in regular servicing status.  Unless the terms of the NOTE state otherwise, funds from payments on loans in regular servicing are applied to: Accrued Interest; Principal; SBA permitted loan fees.  
• Updates/Clarifies order of application of payments on loans in liquidation status,that is, "After acceleration and demand due to default ...", stating the rarity of payments (versus recoveries) from a borrower on a loan in liquidation status.  If borrower can resume regular payments, the loan should be returned to servicing. However, unless the terms of a workout or other legally binding document specify otherwise, payments on loans in liquidation are applied: Principal, Accrued Interest, SBA allowed loan fees.    
• Clarifies that SBA approval NOT needed to extend maturity date up to 10 years beyond original maturity date in order to aid in the orderly repayment of the loan (subject to extension being completed prior to SBA guarantee expiration).   

Note: The SOP is (was) effective March 1, 2013. However, there are now 2 versions posted on sba.gov:  a "clean" version and a "tracked changes" version that shows the technical corrections made. (Multiple iterations carrying the same effective date might be confusing to anyone who prefers to print the clean copy of the SOP, or who maintains the current PDF on their PC to consult daily. One idea is to add a self-created 'footer' on the PDF that distinguishes the clean 'technically corrected' version from the 'original'. The other option is to visit sba.gov every time you need to consult the 50 57.)

Always, always go to sba.gov to download the current Matrix when needed -- or ask NAGGL for the current version. 

http://www.sba.gov/content/servicing-and-liquidation-actions-7a-lender-matrix