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Tip of the Week
Servicing Matter: Tips for CDC's and 7(a) lenders working with SBA
We at sbaAccess (Brian, Karen and John) had the opportunity and the privilege of visiting the SBA Commercial Loan Servicing Centers (CLSC), located in Fresno, California earlier this week. We are pleased to spotlight some of the highlights from that visit in hopes that it will be a bit of an "ah ha" for many of you as you continue to find ways to be efficient and improve quality in your SBA lending portfolios.
First we'd like to thank the management and lead staff at the center for taking valuable time out of their busy schedules to visit with us, listen to concerns that clients of ours have expressed, and to share ways that they are continuing to up their game to provide great service to the lending community. Joel Stiner, the Fresno CLSC director, says it well: "we're a twig on the big tree that is government service, but that doesn't mean that we don't take our jobs seriously because at the end of the day, we know that we are serving real people, with real businesses, in communities all over this part of the country, who ultimately make our economy tick. That gives us all a huge sense of responsibility and pride."
We also spent quality time with the three assistant center directors over three functional areas:
Michelle Serrano, Servicing
Gary Wamhof, Express Purchases
Leslie Niswander, 504 Liquidations
Michelle and her team deal with both 7(a) and CDC lenders on routine servicing actions. She confirmed that one of their biggest challenges is helping lenders understand what is in their authority and what is not. We recently provided guidance on this subject in our Tip of the Week titled, "Clarification of Unilateral Authority" and the updated unilateral matrix is available here. In referencing the matrix, Michelle pointed out that lenders need to be careful to consider the unique facts of each deal before applying the matrix guidelines to their approach to servicing actions on SBA loans. For example, a lender needs to first consider if their action would convey a preference to their institution over SBA prior to taking a unilateral servicing action (think subordination of collateral). On another note for CDC's, a big issue arises when their borrowers want to sell the operating company but retain the building and the loan (it's doable, but not every deal will make sense). The facts of each case will impact whether or not SBA feels comfortable. Bottom line in servicing, Michelle pointed out that "it's not a cookie cutter world, and not everything fits neatly in a box". That is SBA lending alright.
Gary and his growing team focus on SBA Express Purchases. Remember, the two Commercial Loan Servicing Centers (Little Rock and Fresno) are responsible for handling purchases on the Express program. Standard 7(a) loans are, of course, purchased in Herndon but when there is a companion 7(a) loan with an Express loan you still have to deal with both centers (Herndon AND the CSLC). He did say that lenders can expect Herndon to take the lead on making a decision regarding compromises when there are companion loans in workout together. As you might expect, Express purchases are way up this year so their Gary's unit is slammed. A tip to large Express lenders is to avoid "dumping" large batches of purchase requests on the center at one time. Good communication and measured flow will help level out service levels for all lenders and make things go even smoother at the centers. Another tip for all lenders: be sure to place the correct liquidation status code on your loans prior to requesting purchase, otherwise this will bog down the process by several days. Lastly, Gary said "even though there is still an option for lenders to use the old 22-tab system for a guaranty purchase request, it sure would be nice if lenders would use the new 10-tab process because it cuts down on our turn time significantly (it's an issue of entering data into their system - the information is just presented more succinctly in the new way)". (see Express 10 tab link).
Leslie and the fast growing, 504 liquidation and purchase team handle this important piece of center business. Leslie's key comment was crystal clear: "SBA 504 liquidations and purchases begin and end here (at the designated CLSC)". This is important to note for both CDC's and third party mortgagee 504 lenders because in the old days, problem 504 loans were processed through the district offices (with significant input from district legal counsel). Today, the CLSC's handle all that work and again, volume is growing and so is the staff to deal with them. Key points for lenders in this area of SBA lending - read the 3rd party agreements carefully (see Guidelines for participating in SBA 504 loans). Better understanding and communication between the parties can mitigate lost time and frustration in the liquidation and wrap up process on 504 loans.
Like most private sector lenders, the folks in the CLSC's are very busy. Nonetheless, they are approachable and very willing to help make the process smoother and faster for everyone concerned. We took away a number of key thoughts and pearls of wisdom to help our clients work through this important aspect of SBA lending. Watch for opportunities for lender training (liquidation 101 for CDCs and 3rd party lenders, key elements of prudent servicing, and Express Purchases made easier to name a few). Of course we are available for both remote and on-site training - call us to discuss how we might be able to help your group.
As we think about our time in the CLSC, we are reminded that effective servicing starts with the warm lead and the first bit of documentation in a credit file. Effective policy and procedures, clarity of roles, understanding how to work effectively both internally and with your counterparts at SBA (wherever they are located) - all of this is critical to prudent, high quality, profitable SBA lending. These are many of the areas we can help with, both on an as needed (see Lender Lifelines) or short-end project basis. How can we help you and your team with servicing matters?
Upcoming events: The Mid America Lenders Conference in Houston, Texas on August 11th. By they way, Brian will be co-presenting with Hollis Carter from the SBA Little Rock CSLC (Leslie's counterpart), presenting "How to Service Your SBA Portfolio in These Challenging Times". Also, Karen will be co-presenting with David Starfield, with Starfield & Smith law firm, presenting "How to Successfully Close a SBA Loan and Avoid Possible Pitfalls".
Take the right approach.
Karen McHugh, Brian Burke and John Cumbey
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.
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