"SBA does not permit a lender to alter the initial interest rate between the time an application is received and the first calendar day of the first adjustment period after initial disbursement" Okay, that is not new (this language has been in the SOP 50 10 for many years)
"After the first adjustment period the lender may modify the interest rate on the note as a servicing action, so long as:
-
The change does not convert the loan from a fixed rate to a variable rate OR from a variable rate to a fixed rate
However, when a lender "fixes" the interest rate on a variable rate loan to stop the rate fluctuation in a workout situation, it remains a variable rate loan but with a changed adjustment period.
-
The change in the interest rate is agreed to by the borrower in writing.
-
The new interest rate is based on a method permitted when the loan was approved.
-
The new interest rate is within the maximums identified by the SBA for the particular 7(a) program at the time the loan was approved.
If the SBA changes the permissible maximum interest rates for a specific 7(a) program, the new rates apply only to loans approved on or after the effective date of the change.
That's just one footnote and we reprinted it verbatim and took the liberty of adjusting the format so that hopefully it is a little easier to read and understand. It is a bit like diagramming a sentence. Sometimes you have to play with the format to make sense out of the content.
Here is what we think it says in the context of the entire matrix.
-
First, a lender cannot make changes to the rate until the first day following the first adjustment period on a loan that has at least had the initial disbursement. That is why the matrix says "not permitted" in that first block referencing loans that have been approved but not disbursed.
-
For actions after disbursement, lenders CAN make unilateral changes to interest rates without SBA permission and simply notify SBA provided they strictly follow the rest of the items in the footnote 1 AND follow footnote 6 which reads in part:
Footnote 6:
"For loans that have been sold in the secondary market, any payment modifications, interest rate changes, extensions of maturity and deferments over 90 days (cumulative) must have investor approval....." The footnote continues, be sure to read it if you have sold loans and plan to make a servicing action.
There are several other footnotes to the new matrix (12 in all). We strongly recommend that anyone responsible for servicing in your shop carefully read the entire matrix and all of the footnotes. Some are self explanatory and easy to embrace; however, others are somewhat subtle and may take several reads.
Fine Print:
In addition to the footnotes, we encourage you to read and understand the three paragraphs of fairly fine print on page 3 of the Matrix (Version 3) titled "Lender Documentation". This verbiage is important guidance. Among other things, it says lenders must document the business reason and justifications for their decisions (on servicing actions) and keep that documentation in the subject file so that in a future review or purchase situation, SBA can understand the context and rationale of the lender at the time. Lenders are also reminded to note in the file, when taking an action under unilateral authority, "This action was taken under unilateral authority".
We at sbaAccess applaud SBA for continuing to clarify and improve the effectiveness of the Servicing and Liquidations Actions Lender Matrix for 7(a). We understand it is partly out of self preservation in the centralized process and it is also intended to help lenders streamline their processes. That is where we can really help. We help lenders all over the country develop systems and procedures that make sense, that honor the SBA Way of doing things, and that optimize efficiency (allows you the lender to do more with less). If you think we might be a match for your group, give us a call at 972.301.4601 or visit us at www.sbaAccess.com.
Take the Right Approach.
Karen McHugh and Brian Burke
SBA Access ©2009 - All Rights Reserved
All content is copyrighted and unauthorized use is strictly prohibited. If you would like to quote any part of this text, email bburke@sbaaccess.com or kmchugh@sbaaccess.com for permission.
Your Subscription:
