[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




 
  SBA MANAGEMENT REVIEW: OVERSIGHT OF SBA'S ACCESS TO CAPITAL OFFICES

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            JANUARY 12, 2016


                              __________




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            Small Business Committee Document Number 114-037
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
             Emily Murphy, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Ms. Ann Marie Mehlum, Associate Administrator of Capital Access, 
  United States Small Business Administration, Washington, DC....     3
Ms. Linda Rusche, Director of Office of Credit Risk Management, 
  United States Small Business Administration, Washington, DC....     5

                                APPENDIX

Prepared Statements:
    Ms. Ann Marie Mehlum, Associate Administrator of Capital 
      Access, United States Small Business Administration, 
      Washington, DC.............................................    16
    Ms. Linda Rusche, Director of Office of Credit Risk 
      Management, United States Small Business Administration, 
      Washington, DC.............................................    19
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


  SBA MANAGEMENT REVIEW: OVERSIGHT OF SBA'S ACCESS TO CAPITAL OFFICES

                              ----------                              


                       TUESDAY, JANUARY 12, 2016

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:02 a.m., in Room 
2360, Rayburn House Office Building, Hon. Steve Chabot 
[Chairman of the Committee] presiding.
    Present: Representatives Chabot, Velazquez, Chu, Hahn, 
Payne, and Meng.
    Chairman CHABOT. Good morning. The committee will come to 
order. Last week we heard from both the Government 
Accountability Office, the GAO, and the Administrator of the 
Small Business Administration, the SBA, on troubling management 
challenges within the agency. What I heard led me to believe 
that this committee needs to fully review offices within the 
SBA to ensure that each one is meeting its mission.
    We started a series of hearings just yesterday in both full 
committee and subcommittees to examine various SBA offices and 
find ways to overcome significant deficiencies. As the 
President's budget is due to be released next month, it is 
imperative that these hearings are held to ensure our decisions 
about funding various programs, and offices are well-informed.
    Today's hearing will focus on the Office of Capital Access 
and the Office of Credit Risk Management. Access to capital 
continues to be challenging for small businesses. And these two 
offices have the competing tasks of both promoting the SBA's 
access to capital programs and ensuring those programs are free 
of waste, fraud and abuse.
    In fiscal year 2015, SBA lending programs had a record 
year. Lending roughly $23.5 billion in the 7(a) program and 
nearly $4.3 billion in the CDC program, also known as the 
certified development companies, or the 504 loan program.
    As the SBA's lending portfolio continues to grow, it will 
become even more vital that these two offices work together to 
establish clear guidance and ensure the integrity of the 
lending programs. As the committee of jurisdiction, we must 
ensure that we are conducting aggressive oversight and doing 
everything within our power to assist small businesses all 
across the Nation.
    I want to thank our witnesses for being here today and we 
will be introducing you here shortly. At this time, I would 
like to yield to the ranking member, Ms. Velazquez, for her 
opening remarks.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. Our small business 
sector has made great strides since the financial crisis. 
According to ADP, small firms with less than 15 employees 
created over 1.2 million jobs in the past year alone. However, 
traditional bank loans have only recovered to 85 percent of 
their pre-recession level, making the SBA's loan programs a 
critical component of the market.
    To help fill the gap, the SBA assists American 
entrepreneurs and small business owners through a range of 
capital access programs. Today, we will be examining SBA's 
management of this initiative.
    The 7(a) program is, by far, the largest and most active of 
all SBA programs. It guarantees general business loans that can 
be used for everything, from payroll to inventory. Last year, 
SBA made 63,000 7(a) loans totaling $23.5 billion, a record for 
the agency. As SBA's portfolios grow, it is imperative the 
agency has people and systems in place to conduct necessary 
lender oversight and protect taxpayers' interests.
    I will also note that lending volume on loans $150,000 or 
less has shrunk to one-third of pre-recession levels. 
Similarly, small dollar loans used to account for 25 percent of 
all dollars approved. Today, that figure is just 10 percent. It 
is not just about setting loan volume records, it is about 
ensuring the type of businesses that cannot get credit 
elsewhere are gaining access to SBA's program. I look forward 
to hearing from Administrator Mehlum on this subject.
    While providing more capital is laudable, it did not come 
without congressional intervention. Two years in a row, we were 
called upon, at the last minute, to increase SBA's 7(a) 
guaranty authority because it underestimated loan activity by 
30 and 55 percent, respectively. In response, Congress included 
report language in the omnibus to ensure we are kept informed 
of loan activity going forward to prevent the need for 
emergency intervention in the future. How the agency adheres to 
this requirement is a top priority, and one I will be watching 
closely.
    Unfortunately, while the 7(a) program is setting records, 
the 504 program is struggling, and has been on the decline for 
the past several years. In an effort to spur growth, the 504 
refinancing program was recently reauthorized in the 2016 
omnibus. These bipartisan accomplishments will help many 
businesses improve cash flow, expand operations and hire more 
workers, thereby improving the communities around them.
    This is not to say that the 504 CDC program does not have 
outstanding issues. In fact, six GAO recommendations on program 
oversight remain open nearly 2 years after the report was 
issued. I would like to hear how they are being addressed.
    It is the responsibility of this committee and one we take 
very seriously to examine SBA's management practices and ensure 
that adequate internal controls are in place to administer the 
capital access programs. While more work remains to be done, I 
look forward to hearing from today's witnesses on their plans 
to address these outstanding issues.
    With that, Mr. Chairman, I yield back.
    Chairman CHABOT. Thank you very much. The gentlelady yields 
back. I would ask that any committee members who may have 
opening statements submit them for the record. I will take just 
a moment to explain the rules here and the lighting system. You 
are probably both familiar with it, but we operate under the 5 
minute rule. You will each have 5 minutes to testify, and we 
will ask questions for 5 minutes. And there is a lighting 
system, the green light will let you know, it will be on for 4 
minutes, the yellow light will come on when you have got a 
minute to wrap up, and the red light will come on and we ask 
you to complete by the time the red light come on, if at all 
possible. I may give you a little leeway, but not a whole lot 
so try to stay within those parameters, if you wouldn't mind.
    I will now introduce brief introductions for two witnesses 
here this morning. Our first witness is Ann Marie Mehlum, who 
is the Associate Administrator of Capital Access within the 
Office of Capital Access at the SBA, the Small Business 
Administration. We appreciate you being with us today.
    Our second witness will be Linda Rusche, who is the 
Director of the Office of Credit Management, also at the Small 
Business Administration. We welcome you both here and look 
forward to your testimony.
    And Ms. Mehlum, you are recognized for 5 minutes.

  STATEMENTS OF ANN MARIE MEHLUM, ASSOCIATE ADMINISTRATOR OF 
 CAPITAL ACCESS, UNITED STATES SMALL BUSINESS ADMINISTRATION; 
AND LINDA RUSCHE, DIRECTOR OF OFFICE OF CREDIT RISK MANAGEMENT, 
          UNITED STATES SMALL BUSINESS ADMINISTRATION.

                 STATEMENT OF ANN MARIE MEHLUM

    Ms. MEHLUM. Thank you, Chairman Chabot and Ranking Member 
Velazquez. Thank you so much for giving me the opportunity to 
testify today before this committee.
    As the associate administrator for capital access, I am 
responsible for the SBA's loan and surety bonds guaranty 
program, which consists of the 7(a), the 504, the Microloan and 
Surety Bond Programs. As a former community banker who relied 
on these tools for many years, I have seen firsthand how they 
programs help support small businesses and working families 
across America. My time at SBA has only deepened my respect for 
the programs and their direct impact.
    At SBA, we view our role as one of filling an unmet need in 
the lending marketplace. The goal is to help small businesses 
access credit when a conventional loan is otherwise 
unavailable, due to insufficient collateral or equity, startup 
status, or a host of other credit challenges.
    Administrator Contreras-Sweet has asked my office to focus 
on ways to streamline and modernize our programs, recruit new 
lending partners, increase our service to minorities and 
underserved markets, and develop policies that are in line with 
the experience of small businesses in today's economy.
    Last year, as both the chairman and the ranking member have 
noted, our flagship 7(a) program approved over $23.5 billion in 
gross loans, a record loan volume in SBA's history. However, 
there is still much work that needs to be done.
    I want to extend my gratitude to this committee for leading 
Congress in providing additional authorization to meet this 
marketplace need in 2015. SBA's growth in small dollars, or 
loans of $150,000 or less is also worth highlighting. Studies 
show that nearly 90 percent of business loan applications are 
for these small loans. And with gaps in the lending 
marketplace, many of the Nation's underserved small businesses 
often rely upon higher cost alternatives. Under the 
Administrator's leadership, SBA has actively encouraged lenders 
to expand access to these loans. And I am pleased to report 
that since last year, small dollar loans have increased by 22 
percent.
    SBA's commitment to underserved lending is also evident in 
our recent extension of the Community Advantage Pilot Program. 
Created in 2012, lenders participating in community advantage 
are required to make at least 60 percent of these loans in 
underserved markets. SBA's Microloan Program completed a rule 
change effective July 2015 that, for the first time, allows 
microloans to be made to individuals on parole and probation. 
This new rule aligns with White House and interagency 
initiatives to make capital available to credit-ready 
individuals in some of our hardest-to-reach communities.
    Last year, we launched SBA One, and end-to-end 
modernization of 7(a) loan programs accounting platform. Its 
goal was to make doing business with the government easier by 
reducing the cost, time and uncertainty in submitting a loan 
guarantee application. SBA One incorporates electronic 
signatures to complete documentation, interactive online 
decisioning logic to determine a small business's eligibility 
for a loan guarantee, as well as autopopulated forums to reduce 
redundant processing.
    We have consulted our lending partners in developing and 
refining SBA One; we have enrolled hundreds of lenders to use 
the systems; and we reviewed over 1,000 loans via SBA One since 
its launch. We continue to encourage small business growth by 
encouraging new lenders join our program. Currently, a little 
more than one-third of the Nation's banks are active 
participants in SBA's lending programs. Despite recruiting many 
lenders since 2014, there is opportunity for better coverage by 
increasing this participation level.
    We continue to clarify and simplify our rules in standard 
operating procedures for our lending programs without adding 
additional financial risk.
    For the 504 development company loan program, we are 
working hard since the passage of the 2016 omnibus to implement 
504-Refi. And finally, we continue to improve the oversight 
function for SBA's loan programs, which will be addressed in 
more detail by my colleague, Linda Rusche, the Director of the 
Office of Credit Risk Management.
    We must keep these programs relevant and cost effective for 
lenders. For both programs in 2016, we have returned to zero 
subsidy. That's a huge win for the taxpayer. I am confident, 
with the continued support of this committee, SBA will continue 
to improve its service to America's small businesses, which 
will result in more jobs and economic growth. Thank you.
    Chairman CHABOT. Thank you very much. Ms. Rusche, you are 
recognized for 5 minutes.

                   STATEMENT OF LINDA RUSCHE

    Ms. RUSCHE. Thank you, Chairman Chabot and Ranking Member 
Velazquez, for the opportunity to be here today and testify 
before the committee regarding the Office of Credit Risk 
Management at SBA. As the president of OCRM, I am responsible 
for the oversight and risk management of SBA's lenders and loan 
guaranty portfolios of the 7(a) and the 504 development company 
loan programs.
    I have spent the better part of two decades in this 
activity, lender oversight and loan program risk management, 
first, from the Kansas City review branch, and, for the last 2 
years, here in Washington.
    SBA's Administrator Contreras-Sweet is a leader in 
championing small business lending, while maintaining prudent 
credit standards in our loan programs. SBA's particularly 
interested in balancing the growing credit needs of America's 
small businesses with prudent lending, always ensuring that we 
are meeting the requirements of our mission in accordance with 
the Small Business Act.
    SBA's role is to fill an unmet need in the marketplace to 
help creditworthy small businesses access credit when a 
conventional loan is not available. SBA also is critical in 
providing credit to underserved markets. As of September 30, 
2015, we monitored a 7(a) loan portfolio in excess of $70 
billion and approximately $26 billion in 504 debenture 
guarantees. We monitored all 7(a) lenders and CDCs using our 
loan and lender monitoring system, what we call LLMS, which 
tracks the monthly performance of all 7(a) and 504 loans and 
assigned a quarterly risk rating to each loan.
    OCRM also updated our methodology for oversight of the SBA 
operations of federally regulated 7(a) lenders and of CDCs this 
past year. These methodologies feature a composite risk 
measurement and a scoring guide known as PARRiS for 7(a) 
program and SMART for the CDC, or 504 program. Benchmarks of 
historical and projected performance have been developed for 
PARRiS and SMART, and provide relative measures of lenders 
financial risks, specific to each program. By using both 
predictive and historical performance measures, OCRM obtains a 
holistic picture of lender risk upon which we consider 
oversight activities as needed.
    Other accomplishments in 2015 include conducting over 1,200 
assessments to renewed delegated authority for our 7(a) and 
504, or CDCs; completion of over 145 corrective action 
assessments from previous review activities; and approval of 
our 100th community advantage lender.
    Turning to supervision and enforcement, OCRM issued six 
increased supervision actions to 7(a) lenders and CDCs this 
past year for a failure to follow loan program requirements, 
and debarred or suspended over 30 agents or representatives 
from conducting further business with SBA.
    In fiscal year 2016, OCRM will continue to conduct a 
portfolio diagnostic of every lender using historical 
performance, predictive credit scores, and the PARRiS and SMART 
methodologies. OCRM also will continue to monitor lenders 
through programmatic risk-based review.
    In 2016, OCRM plans to conduct in-depth analysis using our 
SBA loan database to investigate existing risk, identify 
developing risk areas, and to inform program changes under 
consideration. And SBA also continues in active discussion with 
primary Federal regulators on such topics as information 
sharing and vendor management. Through exchange of information, 
we can bring improved oversight and monitoring to our 
activities and theirs, minimizing duplication.
    I thank you for the opportunity to share this information, 
I will be happy to respond to any questions.
    Chairman CHABOT. We thank you very much for your testimony 
also, and now we will turn to the committee and I will begin 
with myself here. I recognize myself for 5 minutes.
    Ms. Mehlum, let me start with you. Last year, Congress had 
to act very quickly when the 7(a) program reached its lending 
cap to ensure that small businesses would be able to continue 
receiving loans from that important program. What are ways that 
the SBA is currently managing the 7(a) program to ensure that 
this doesn't occur, or does occur, that Congress is notified in 
a more timely manner so that we don't bump up against, 
literally, the program closing down. And a lot of small 
businesses--we got, I'm sure a lot of us, especially the 
ranking member and myself, got a lot of calls from constituents 
all over the country who were afraid the program was going to 
end. Congress, for a change, got its act together and worked 
with the administration, and the House and Senate worked 
together in conjunction with the SBA. But we would like to 
avoid that, if at all possible the next time, so we would like 
to hear how we can avoid that from happening?
    Ms. MEHLUM. Yes. We would like to avoid that as well, 
because that was unsettling at the end of the year last year. 
We watch those numbers every single day. We didn't really have 
a formal mechanism last year. We started talking, I think, 
informally with members here, probably 6 months before the end 
of the year. This year, as you know, you have asked us and we 
are working on the first report. We will be reporting to you 
the numbers each quarter. So far we are looking like we are 
within our need for 2016, but we will work with you and report 
those numbers every quarter and work together to ensure that we 
don't have kind of a last minute fire drill. We would like to 
avoid that as well.
    Chairman CHABOT. Good. Yeah, I think we should be working 
together on this to make sure it doesn't happen again. 
Ultimately, it got taken care of.
    Ms. VELAZQUEZ. Mr. Chairman, may I ask a question related 
to this?
    Chairman CHABOT. I will yield to the ranking member.
    Ms. VELAZQUEZ. So how much 7(a) capital is the SBA 
estimating it will provide in fiscal year 2016?
    Ms. MEHLUM. I think our estimation for this year is $26.5 
billion, which is what we have in the 2016 omnibus.
    Ms. VELAZQUEZ. Thank you.
    Chairman CHABOT. Reclaiming my time.
    Last year, Congress took a good idea from the SBA regarding 
waiving upfront fees on express loans to veterans. Are there 
other SBA initiatives underway within your offices that you 
think the committee should be aware of which could bolster 
access to capital for small firms across the country? Would you 
like to take that again?
    Ms. MEHLUM. This year we are continuing with our no fees on 
loans under $150,000, that is, no fees to lenders and no fees 
to borrowers. We know that those small loans that the ranking 
member pointed out really do serve the underserved markets the 
best. We have higher percentages in all the underserved markets 
in the smaller loans. So we are trying to keep making these 
loans attractive for lenders to make. They are very costly for 
lenders to make, so we work hard to make those loans 
attractive. We also have a smaller fee on veterans' loans over 
$350,000, which was in addition to the app that you provided us 
late last year for veterans fees under $350,000.
    Chairman CHABOT. Thank you. As you know, the GAO did a 
report and we had a couple hearings on this last week. And, you 
know, I brought up the point that we have seen the IRS, and 
OPM, and the State Department, even the White House hacked 
recently within the last year or so. According to the report, 
there were some concerns about how the SBA is protecting 
sensitive information, which they certainly have access to a 
lot of stuff that the business community, small businesses 
wouldn't want to be out there to either their competitors or 
the Chinese or anybody else. So could you tell us how quickly 
you intend to improve in that area?
    Ms. MEHLUM. Well, I appreciate that question, because one 
of the big accomplishments of last year was that we managed to 
get all the loan systems on to a new platform that has passed 
total muster with our auditor, which audited the system. It has 
also been tested and viewed by all the major banks that 
interface with us. So the loan system is on a new system. It is 
not on the system that had been criticized in the past in GAO 
audits. We are very excited about that. We feel not that we are 
not continuing to monitor it and looking at what we need to do 
to make sure that we have as tight a security as possible, but 
that system got totally migrated onto a new system last year.
    Chairman CHABOT. Let me squeeze in one more question here. 
I am almost out of time here. One challenge we heard repeatedly 
is that the SBA's loan process takes too long, that people 
literally give up. What are you doing to modernize the program? 
We heard the computer systems don't talk to each other, and 
been pretty much a mess, frankly. You really need to step up on 
that. What action are you involved in at this time to improve 
that?
    Ms. MEHLUM. Chairman Chabot, I love that question because I 
am a former banker. All my life, I was in lending. My last job, 
I was a CEO of a bank that really was a business bank in 
Oregon. And I loved having the SBA tools in my tool box, but 
even my little bank got to the point where it was tough for us 
to ask for an SBA guaranty on a small loan because of the 
process. And that is one of the reasons why I accepted this 
assignment was because I wanted to sure that the SBA loans can 
be processed in a cost-effective way by lenders.
    So we are attacking it in a number of ways. One is 
modernization through technology. We have talked about SBA One. 
It is a platform that allows lenders to apply for a guarantee 
in an interactive interface online. It is kind of like 
TurboTax, it is an online iterative approach. It also helps, 
therefore, with eligibility issues and you don't have to go to 
the 300-page SOP to find the solution. A lot of that is right 
built into the system.
    The other thing that we are doing, that we are working on 
all the time, and we have got a couple of major initiatives 
going on right now, is simplifying, simplifying and clarifying 
our requirements. We are working hard on clarifying our 
affiliation and our franchise rules, for example, as we speak. 
So both in terms of technology and in terms of simplifying and 
streamlining our process, those are the things that I feel like 
I spend 99 percent of my time on.
    Chairman CHABOT. Thank you. My time has expired, but I 
would just urge you to do everything possible to reduce the 
amount of time that it actually takes a small business to get 
through the system, because it is one of the largest areas of 
complaints I hear as chair of the committee. I'm sure my 
colleagues do, too.
    I will now recognize the ranking member for 5 minutes.
    Ms. VELAZQUEZ. Thank you. So Ms. Mehlum, the system that 
you said passed muster in terms of loan processing, is that SBA 
One?
    Ms. MEHLUM. SBA One is on that same platform. But also SBA 
One--the thing that is new with SBA One is that is the 
interface with the lender. The accounting system behind that, 
which keeps track of our guarantee in every single loan 
wherever it is, is the fiscal transfer agent system, and that 
system that entire system has been moved to the new platform.
    Ms. VELAZQUEZ. So you are telling us today that you are on 
a better path compared to LLMA's past decade experience?
    Ms. MEHLUM. Yes.
    Ms. VELAZQUEZ. In delays, and cost overruns, and 
questionable results, you are saying we are in a better----
    Ms. MEHLUM. Yes. It was a huge accomplishment, it was 
really an initiative that took several years.
    Ms. VELAZQUEZ. So let's talk about last week's GAO report 
to us. Mr. Bill Shear talked about the 504 loan program. In 
2014, GAO pointed out to some recommendations. Two years later, 
those recommendations are still open. Can you explain to us why 
that is?
    Ms. MEHLUM. The only recommendation that I am aware of 
regarding the 504 program is still open. And keeping in mind 
that it takes time sometimes when we complete a recommendation 
for them, then, to get back to us and agree that we have 
completed it. But the one that I am aware of that is still open 
has to do with economic--the requirements for CDCs to invest in 
economic development in their communities. And we have just 
issued a notice to get public feedback on how we do that 
requirement, how we are going to meet that requirement. So we 
are on the path to complete that GAO----
    Ms. VELAZQUEZ. Have you met with GAO to discuss ways to 
close those recommendations?
    Ms. MEHLUM. My team has met with them recently. I have met 
with them, but it has been probably 6 months since I've 
personally met with them. But my team meets with them, and our 
team meets in OCA every other week and talks about completing 
the GAO audit items. We actually completed a whole bunch of 
them last year. I have been here for 2 years, we have completed 
more GAO audit items than we have created. That is my goal, is 
to get them responded to and handled.
    Ms. VELAZQUEZ. In response to GAO's recommendation that SBA 
conduct more program evaluations, SBA said it is currently 
restricted from collecting data from small business resource 
partners, or does not have adequate information collection 
systems making evaluations difficult. Can you elaborate on 
that?
    Ms. MEHLUM. That is something I am going to have to look 
into, Ranking Member Velazquez. I am not aware of that 
particular issue, but I will get back to you on it.
    Ms. VELAZQUEZ. Because if that is the case, then you need 
to tell us how can we improve your ability to collect data so 
that you could perform the type of evaluations that are 
important.
    Ms. MEHLUM. I agree, and I will get back to you on that.
    Ms. VELAZQUEZ. Thank you.
    Director Rusche, in its March 2014 report, GAO stated that 
SBA had planned to implement its new SMART process for 
assessing the CDC program by June 1st, 2014. Has SMART been 
fully implemented? And have you conducted any analysis of its 
impact today?
    Ms. RUSCHE. Thank you so much for that question, because I 
am pleased to tell you that yes, SMART is fully implemented. We 
are conducting assessments of CDCs in accordance with those 
protocols. We issued a notice in August of this year to 
formalize that to all individuals. We have not conducted a 
formal assessment of the results of SMART itself, but we are 
conducting oversight and further management activities with 
CDC's relative to the results of the SMART reviews, which allow 
us both onsite and offsite capability to interact with them and 
keep costs low while activities efficient.
    Ms. VELAZQUEZ. Thank you. I yield back.
    Chairman CHABOT. The gentlelady yields back. The gentlelady 
from California, Ms. Chu is the ranking member of the Economic 
Growth, Tax and Capital Access Subcommittee, is recognized for 
5 minutes.
    Ms. CHU. Ms. Mehlum, I am thrilled to say that at the end 
of 2015, Congress made permanent a program that I had been 
championing with my bill, the CREED Act for the past two 
Congresses. It is the 504 CDC debt refinancing program that 
allows small business owners to refinance existing commercial 
debt with long-term fixed rate financing so that they can 
create jobs and boost economic growth. In its trial year of 
2012, over 2,700 businesses refinanced nearly $7 billion in old 
expensive debt, so it was clearly a very popular program, but 
then allowed to expire at the end of 2012.
    I would like to thank the chair and the ranking member for 
their support in getting this bill to be in the bill that was 
passed in 2015. So it's my understanding that SBA has begun to 
craft the regulations for this program. Can you provide an 
update on these regulations? Can you tell us how the process is 
going? And do you have a timeline for the approval process for 
the regulation? And how long after the regulation's release do 
you think small businesses may be able to apply for the 
program?
    Ms. MEHLUM. I can give you some rough information. We have 
been working on this with our general counsel and with OMB. We 
are officially trying to be ready to launch and be able to 
process refi loans in June, but my goal is to get it done 
before that. It's just all the steps of getting the rule out. 
One of the things that we are trying to do this time is to make 
the process as simple and less complicated. It was very 
complicated last time. We are trying to simply if where we can 
and still meet our regulations. So we are hoping to have it 
ready for prime time in June, but as I say, my goal is to get 
it done before that.
    Ms. CHU. That sounds great.
    Now what regulations do you anticipate may be different in 
the permanent program versus the previous temporary program?
    Ms. MEHLUM. I think some of the regs that are different 
from the old program have to do with some changes that we have 
made during this last year. We had some look-back provisions. 
When a company refis its debt, in our old program we required 
them to show evidence of debt that might have been 5, 10, 15 
years old. Between that old program and now, we have simplified 
some of those rules already. So we will be implementing that 
kind of streamlining in the new rules so that it is not so 
onerous on the borrower to have to show evidence of what the 
debt was on their books for. That is just one thing that comes 
to mind.
    I would like to respond more carefully to your question and 
I would like to go back and ask my team for these details, if 
you would like me to.
    Ms. CHU. They would still have to show debt, but the way in 
which they do it is more----
    Ms. MEHLUM. If they have debt on their books, we have made 
it simpler. So if they show debt on their tax returns--and I 
don't want to go into the weeds because I will get it wrong--
but if they show debt on their tax returns, rather than having 
them to have to dig back and show us the notes and the payment 
records of loans that are over 2 or 3 years old, we will take 
the fact that they have debt showing on their tax return and be 
able to refi that debt without them having to dig for a lot of 
old paperwork to confirm that that was actually debt that we 
are refinancing.
    Ms. CHU. I see. That sounds good.
    And in what form will these regulations be released? 
Standard operating procedure? Or interim? Final? Or what?
    Ms. MEHLUM. This is one of the things we are looking at 
right now. My understanding is that there will be a reg to 
address a couple items, and then we will have to also make our 
standard operating procedures fit that reg and have the details 
that we need for processing, that's why it is going to take 4 
months to 5 months to get this done.
    Ms. CHU. And will you need additional staffing resources to 
help with this process and this program?
    Ms. MEHLUM. That would be nice. Right now we are doing it 
with our existing staff. It is a high priority for the 504 
program. One of the things that I did want to add is the 504 
program has lagged a little bit in the last few years, and we 
focused the last few years on governance of that program to 
make sure that the CDCs are operating in a healthy manner. This 
year we are really going help to focus on growing that program, 
helping market that program, streamlining so that that program 
can grow. It is a great program. I used it as a banker. I had 
many customers that were able to get into their own real estate 
because of that program. So in general, we are going to really 
focus on helping that program grow this year.
    Ms. CHU. Thank you.
    Chairman CHABOT. Thank you.
    The gentlelady's time has expired. The gentlelady from 
California, Ms. Hahn, is recognized for 5 minutes.
    Mr. HAHN. Thank you, Chairman Chabot, for holding this 
important hearing. It was interesting last week that 
Administrator Maria Contreras-Sweet testified to this 
committee; the extremely positive steps that she has taken to 
make the SBA a more accessible and efficient agency since 
taking on her role. She reported a record year in small 
business lending, a record year in investment, a record year in 
contracting, all with zero taxpayer subsidies needed to sustain 
this kind of momentum. I applaud her great record of helping 
the needs of small businesses across this Nation.
    In your testimony, Administrator Mehlum, you stated that 
SBA loans to women and minority groups have increased by 20 
percent each year under her leadership, and we find an even 
more impressive number achieved when it comes to loans to 
veterans, an increase of 103 percent. This is great for Los 
Angeles County where we come from. It has more women-owned 
businesses than any other county in the country, and where 55 
percent of businesses are minority-owned. These statistics show 
that SBA is moving in the right direction, even under the 
oppressive sequestration.
    We know that there is more work to do. And what I wanted to 
ask you, Ms. Mehlum, is one of the things that you said was 
that roughly one-third of our Nation's banks actively 
participate in SBA's lending programs. This is despite SBA 
working to recruit more lenders since 2014. In my district, 
there are dozens of different banks that businesses turn to for 
their banking needs. And many businesses have special 
relationships with their bank of choice and have a history of 
being long, loyal customers. So if only one-third of the banks 
are participating with SBA, then a majority of the businesses 
are likely banking with an institution that does not work in a 
lending partnership with SBA. So why do you think there is only 
a one-third of banks participating? What are you doing to 
increase that? And how do credit unions--how are they a part of 
this scenario?
    Ms. MEHLUM. Okay. So, I really appreciate that question. 
Again, as a former banker, I thought that having the SBA 
guaranty, you know, a tool in my toolbox, was always a 
phenomenal way to help a customer that I just couldn't quite 
underwrite with depositors' dollars. And, really, the SBA 
guaranty loan programs epitomize to me the best of public and 
private partnerships because here we have lenders, regulated 
lenders in the field making loans, and the SBA just steps in to 
guarantee for the weakest of credit, the weakest of borrowers, 
and at zero subsidy. So it is a fantastic program.
    One of the problems over time that can happen in Federal 
Government is that the program became harder and harder to 
implement. Chairman Chabot has pointed out that he gets most of 
the complaints because it takes so long to get a loan guaranty 
approval, which is the problem that we are working to solve 
with automation, technology, and streamlining and simplifying 
our procedures. And the other thing that we have to do is we 
just have to get out to those banks and market to them and show 
them how SBA has changed and grown and improved.
    But you are absolutely right. We have a lot of opportunity 
by bringing back and bringing in more lenders. We do have 
initiatives with credit unions right now, we are working with 
credit unions, especially those who do business lending, and we 
have increased participation among credit unions as well.
    Mr. HAHN. Well, I appreciate that. And that was really the 
nature of the only thing I really wanted to ask you. It is so 
interesting that from the time I have been on this committee, 
you know, sort of the number one issue with our small 
businesses is not really any oppressive regulations or, you 
know, other things that we might think are holding them back, 
it is access to capital. Many of them want to get, you know, 
even a small- or medium-sized loan. And we know that when they 
get that loan, you know, they will expand and they will hire. 
And I have seen that replicated many times in my own district. 
So we just need to get more banks, you know, with the program 
and show them that it is something positive for our economy.
    And really one of the regrets I think--I wasn't here for 
the bailout of our banks, but I think one of the regrets is 
that in exchange for that taxpayer bailout, that we didn't put 
a little more requirement or obligation on their end to get 
back and lend those dollars back to--particularly the small 
businesses in this country who we know are really the backbone 
of this economy. So, thank you. We think you are going in the 
right direction, but we want you to get more banks with the 
program.
    Chairman CHABOT. Thank you. The gentlelady's time has 
expired. I would just note, I certainly agree with the 
gentlelady from California's comment about the access to 
capital is a big problem, but I personally have heard lots and 
lots of examples of overregulation being a serious concern of 
small businesses across the Nation, too. But I would just note 
that for the record.
    The gentlelady from New York, Ms. Meng, who is the ranking 
member of the Agriculture, Energy and Trade Subcommittee, is 
recognized for 5 minutes.
    Ms. MENG. Thank you, Mr. Chairman, and thank you to our 
witnesses for being here today. I just want to piggyback a 
little bit off of what Ms. Mehlum's response to Congresswoman 
Hahn about the recent changes to the Office of Capital Access. 
At last week's hearing, we discussed a lot about the continuity 
at the agency during administrative transitions. Can you 
explain how these offices have been set up, or are improving in 
handling these transitions?
    Ms. MEHLUM. Thank you for that question. It just so happens 
that our Administrator has already begun a process at the SBA. 
In fact, we had a retreat last Friday to work with our career, 
as well as our appointed leaders to ensure that there can be a 
smooth transition, and that initiatives underway will continue. 
And I can tell you that in the Office of Capital Access, we 
have a wonderful team of executives, including Linda Rusche, 
who has been with the agency for--I won't tell how many years--
who knows this program and given the right leadership from this 
committee and the right resources, will continue to run these 
programs effectively and positively for the taxpayer as well.
    Ms. MENG. Thank you. Many businesses in my district have 
been able to avail themselves of 7(a) and 504 loans, which are 
critical sources of support for entrepreneurs. Despite the fact 
that many entrepreneurs are also immigrants, I hear that these 
minority-owned businesses often struggle to find the resources 
they need. And last week, the Administrator did talk about 
improvements that have been made. And I commend all of you for 
that.
    What more can the Office of Capital Access do to ensure 
that you are reaching out to more and more entrepreneurs 
throughout all of our districts?
    Ms. MEHLUM. Well, this is a main objective and initiative. 
We talk about it everywhere. We work with our trade partners. 
As you know, we have a real strong association with NAGGL. They 
have a committee that helps working with us to reach 
underserved markets, to find those borrowers who don't normally 
have access to capital. We are doing it with pricing, as I 
mentioned, by keeping the small dollar loans less expensive. We 
are doing it just with outreach and communication. We are doing 
it in the community advantage program by requiring that 60 
percent of those loans go to underserved markets. We are also, 
you know, working very hard on our Microloan program, which is 
the starting point for all borrowers, as having a major impact 
on underserved market lending.
    So we are working basically on several fronts, but it is 
top of mind, and we track it, and we follow it, and we talk 
about it. We look at numbers every single month. We talk about 
it at conferences, we talk about it in our training, and it is 
an important, important focus of the Office of Capital Access.
    Ms. MENG. Thank you. I yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back. The 
gentleman from New Jersey, Mr. Payne, is recognized for 5 
minutes.
    Mr. PAYNE. Thank you, Mr. Chairman.
    Ms. Mehlum, when I visit small businesses in my district, 
by far, one of the most heard concerns naturally is the 
barriers access to capital, and particularly accessing smaller 
dollar loans. While six in 10 SBA loans are for $150,000 or 
less, this is still below the benchmark set in 2007. And this 
deficiency remains unchanged year after year. What steps is SBA 
taking to increase loans for businesses that need them the 
most, and, specifically, loans under 150,000?
    Ms. MEHLUM. So that's the issue that I am trying to 
articulate that we are emphasizing very much making those 
loans. We have reduced fees on small dollar loans; we have 
initiatives with our veterans' business development group to 
ensure that we are reaching veterans groups. We have a special 
office in the SBA that helps us reach women's groups.
    In the Office of Capital Access, we have the Office of 
Economic Opportunity which is--our director there, Grady 
Hedgespeth, basically his team focuses full-time on ensuring 
that our loan products, all of them, 7(a), 504, community 
advantage and microloans are reaching into the underserved 
markets. It is a challenge, we have work to do, we are making 
good progress. It has been a priority of our Administrator, and 
it has been my priority, and we are going to see growth again 
next year. And if you can help us figure out how to do it 
better, we are definitely open for suggestions. But it is a 
priority, and we are trying to hit it on various fronts.
    Mr. PAYNE. The information that I receive in terms of 
preparing for this hearing is, since 2007, there hasn't been 
much change.
    Ms. MEHLUM. Well, you are talking about the percentages of 
those loans, but one of the things that has happened since 2007 
is somewhere in there, the maximum loan size has gone up. I 
think it went up from $2.5 million to $5 million--was it 2010? 
I wasn't with the SBA then, and I don't recall exactly, but 
just by the very nature that we now do loans between $2.5 
million and $5 million, I think excuse those statistics that 
you are looking at. For us, we made 22 percent more loans in 
2015 than we did in 2014 in the size category of 150 and below.
    Mr. PAYNE. Okay. Since you brought it up, I will ask this 
question: In the last year's budget justification, SBA stated 
they will continue implementing revised 504 regulations, but 
did not provide any details. What steps has the SBA taken to 
address these problems in the 504 CDC program?
    Ms. MEHLUM. Could you be a little more specific? You are 
asking about 504 regulations that we did not implement?
    Mr. PAYNE. Right. You state--it is stated in the 
justification that you will continue implementing revised 504 
regulations, but you were not--it was not detailed.
    Ms. MEHLUM. Okay. So I know this last year, we implemented 
a number of 504 regulations, most of them having to do with 
governance of CDCs, they were in effect in April, of 2015? 
2014.
    Ms. RUSCHE. Published in 2014.
    Ms. MEHLUM. Published in 2014. I am looking to my experts 
here. And we have implemented a number of 504 governance 
regulations since we last testified. Is that what you are 
referring to? I am sorry, I am not quite catching your 
question.
    Mr. PAYNE. Well, you are familiar with the year's budget 
justification----
    Ms. MEHLUM. Right.
    Mr. PAYNE. --that you do that, right? And so, in it, you 
stated that you would continue to--implementing revised 504 
regulations. Obviously, there are issues with the program, 
correct?
    Ms. MEHLUM. Yes. I mean, we have issues everywhere, 
everybody--we have issues. We are working on our issues all the 
time. Yes, we did, just last year, do a number of implementing 
504 regulations.
    Mr. PAYNE. Okay. Well, obviously, there is still an issue 
about getting clarification and some specificity in what those 
changes are, because you are still having a problem right now 
being specific about it. But we would hope that you would 
continue to work towards working on those issues, and I will 
yield back.
    Chairman CHABOT. The gentleman yields back. I would like to 
thank you both for participating in the hearing this morning. 
The government has long recognized the need to aid 
entrepreneurs and small businesses across the Nation so that 
they have access to capital necessary to create jobs. And it is 
the principal thing, I think, the SBA does is the loan 
programs, the guaranties that you are responsible for. As you 
know, the GAO report released recently informed this committee 
that there is still some significant mismanagement issues at 
the SBA. For example, they had made 69 recommendations, and of 
those, only seven had been implemented. A lot of the committee 
members were quite concerned about that last week. And we urged 
rapid improvement on those recommendations. They have yet been 
implemented.
    So, there is obviously still considerable room for 
improvement. This committee would urge you to take action on 
these items, because after all, the principal purpose of the 
SBA and the oversight responsibilities of this committee is to 
make sure that we are serving the small businesses all across 
this country. Please work very hard at this, and we will keep 
an eye on you. So thank you very much for your testimony here 
this morning.
    I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record. And if there is no further business to come 
before the committee, we are adjourned. Thank you very much.
    [Whereupon, at 10:54 a.m., the committee was adjourned.]
                            A P P E N D I X


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    Thank you for the opportunity to testify before this 
Committee, Chairman Chabot and Ranking Member Velazquez. As the 
Associate Administrator for Capital Access, I am responsible 
for the SBA's loan and surety bond guaranty programs which 
consist of the 7(a), 504, Microloan, and Surety Bond Programs. 
As a former community banker who relied on these tools for many 
years, I have seen firsthand how these programs help support 
small businesses and working families across America. My time 
at SBA has only deepened my respect for the programs and their 
direct impact.

    At SBA, we view our role as one of filling an unmet need in 
the lending market place--the goal is to help small businesses 
access credit when a conventional loan is otherwise unavailable 
due to insufficient collateral or equity, start-up status or a 
host of other credit challenges. Administrator Contreras-Sweet 
has asked my office to focus on ways to streamline and 
modernize our programs, recruit new lending partners, increase 
our service to minorities and underserved markets, and develop 
policies that are in line with the experience of small 
businesses in today's economy.

    Last year, our flagship 7(a) program approved over $23.5 
billion dollars in gross loans--a record loan volume in SBA's 
history. However there is still much work that needs to be 
done. I want to extend my gratitude to this Committee for 
leading Congress in providing additional lending authorization 
to meet this market place need. Your action, which provided the 
necessary guarantee authority in 2015, helped SBA fulfill its 
mission and ensure small businesses continue to benefit as our 
economy recovers.

    In addition in our Surety Bond Guaranty Program, SBA 
guaranteed 11,000 bonds representing some $1.3 billion dollars 
in contracts awarded to small businesses. I am appreciative of 
this committee's support of the surety program changes in the 
National Defense Authorization Act. This law increased the 
guaranty percentage in the Surety Bond Preferred Program from 
70 percent to 90 percent--a significant win for small 
businesses.

    SBA's growth in small dollar loans, or loans of $150,000 or 
less, is also worth highlighting. Studies show that nearly 90 
percent of business loan applications are for these small 
loans, and with gaps in the lending market place, many of the 
nation's underserved small businesses often rely upon high-cost 
alternatives.

    Under the Administration's leadership, SBA has actively 
encouraged lenders to expand access to these loans. And, I am 
pleased to report that since last year small dollar loans have 
increase by twenty-two percent. Similarly, there have been 
significant gains in 7(a) lending to underserved groups; 
specifically:

           Loans to women increased by twenty-percent 
        over the previous year;

           Loans to veterans increased by 103 percent; 
        and

           Loans to all minority groups increased by 
        twenty three percent from 2014 to 2015.

    SBA's commitment to underserved lending is also evident in 
our recent extension of the Community Advantage Pilot Program 
to 2020. Created in 2012, lenders participating in Community 
Advantage are required to make at least 60 percent of CA loans 
in underserved markets. In FY2015 the program approved more 
than $100 million in lending in just one year, surpassed $200 
million since its inception in 2012, and recruited its 100th 
lender.

    SBA's Microloan Program completed a Rule change effective 
July 2015, that for the first time allows microloans to be made 
to parolees and probationers. This new rule makes aligns with 
White house and Interagency initiatives to make capital 
available to credit ready individuals in some of our hardest to 
reach communities.

    Last year, we launched SBA One: an end-to-end modernization 
of the 7(a) Loan program's fiscal transfer agent system. Its 
goal is to make doing business with government easier by 
reducing the cost, time, and uncertainty in submitting a loan 
guaranty application. SBA One incorporates electronic 
signatures to complete documentation, interactive online 
decisioning logic to determine a small businesses's eligibility 
for a loan guaranty, as well as auto-populated forms to reduce 
redundant processing. We have consulted our lending partners in 
developing and refining SBA One, enrolled hundreds of lenders 
to use the system, and have approved over 1000 loans via SBA 
One since October 2015.

    We can continue to encourage small business growth by 
encouraging new lenders to join the program. Currently a little 
more than 1/3 of the nation's banks are active participants in 
SBA's lending programs. Despite recruiting many lenders since 
2014, there is opportunity for better coverage by increasing 
this participation level.

    We continue to clarify and simplify our rules and Standard 
Operating Procedures for our lending programs without adding 
financial or reputation risk.

    And, we continue to eliminate `non-value add' tasks at our 
nine processing centers nationwide. This initiative for center 
efficiency is a multi-year undertaking which seeks to reduce 
the time it takes for lenders to process, service and collect 
SBA guaranteed loans.

    For the 504 Development Company Loan Program, we are 
working hard since the passage of the FY 16 Omnibus to 
implement 504-Refi.

    Finally, we continue to improve the oversight function for 
SBA's loan programs, which will be addressed in more detail by 
my colleague, Linda Rusche, who is the Director of the Office 
of Credit Risk Management.

    We must keep these programs relevant and cost effective for 
lenders who make loans to small businesses. For 2016 both the 
7a and 504 programs have returned to zero subsidy--a win for 
the taxpayer. I am confident that with the continued support 
this Committee has provided us, the SBA will continue to 
improve its service to America's small businesses, which will 
continue to provide jobs and economic growth.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    Good morning, Chairman Chabot and Ranking Member Velazquez, 
and thank you for the opportunity to testify before this 
Committee on the Office of Credit Risk Management (``OCRM'') of 
the U.S. Small Business Administration (``SBA''). As Director 
of OCRM, I am responsible for the oversight and risk management 
of SBA's lenders and loan guaranty portfolios of the 7(a) and 
Development Company (or ``504'') Loan Programs. I have spent 
the last two decades involved in lender oversight and loan 
program risk management at SBA, first from my hometown Kansas 
City, Missouri, and for the last two years here in Washington, 
DC.

    SBA's Administrator Contreras-Sweet is a leader in 
championing small business lending while maintaining prudent 
credit standards in our loan programs. SBA is particularly 
interested in balancing the growing credit needs of America's 
small businesses with prudent lending, always ensuring that we 
are meeting the requirements of our mission as defined in the 
Small Business Act.

    SBA's role is to fill an unmet need in the market place--to 
help creditworthy small businesses access credit when a 
conventional loan is not available--generally due to lack of 
collateral, start-up business status, industry type, or other 
issues. SBA is critical in providing credit to underserved 
markets, in a commercially prudent and reasonable manner.

    My mission, and that of the entire Office of Credit Risk 
Management, is to effectively manage program credit risk, 
monitor lender performance, and enforce lending program 
requirements. In short, our mission is to maintain the 
integrity and viability of the 7(a) and 504 Loan Programs.

    As of September 30, 2015, OCRM monitored a portfolio of 
3,949 lenders that provide 7(a) guaranty financing in excess of 
$70.2 billion and 247 Certified Development Companies 
(``CDCs'') responsible for approximately $26 billion in 504 
debenture guarantees. This includes supervision of 14 Small 
Business Lending Companies (``SBLCs''), over 50 Non-Federally 
Regulated Lenders (``NFRLs'') and over 100 Community Advantage 
Lenders.

    During fiscal year 2015, the Office of Credit Risk 
Management monitored all SBA 7(a) Lenders and CDCs using our 
Loan and Lender Monitoring System (``L/LMS'') which tracks the 
monthly performance of all 7(a) and 504 loans and assigns a 
quarterly credit score for each loan. A quarterly purchase 
rating for each lender is also generated using this L/LMS data.

    In fiscal year 2015 OCRM also updated our methodology for 
oversight of the SBA operations of Federally Regulated 7(a) 
Lenders, and of CDCs. These methodologies feature a composite 
risk measurement methodology and scoring guide known as 
``PARRiS'' for 7(a) Lenders and ``SMART'' for CDCs. (The PARRiS 
components cover the following areas: Portfolio Performance, 
Asset Management, Regulatory Compliance, Risk Management, and 
Special Items. The SMART components cover the following areas: 
Solvency and Financial Condition, Management and Board 
Governance, Asset Quality and Servicing, Regulatory Compliance, 
and Technical Issues and Mission.)

    Benchmarks of historical and projected performance have 
been developed for the PARRiS and SMART methodologies, and 
provide relative measures of lenders' financial risk specific 
to each program. By using both predictive and historic 
performance metrics, OCRM obtains a holistic picture of lender 
risk, upon which to consider additional oversight activities. 
OCRM also updated risk-based review protocols to align with 
PARRiS and SMART, and conducted 565 risk-based reviews and 
exams using these protocols during the recent fiscal year.

    Other accomplishments from FY 2015 include conducting over 
1,200 assessments to renew delegated lending authority for our 
delegated 7(a) Lenders and CDCs; completion of 147 Corrective 
Action follow-up assessments from previous review activities, 
and approval of the Agency's 100th Community Advantage Lender.

    Turning to our supervision and enforcement 
responsibilities, OCRM issued 6 increased supervision actions 
to 7(a) Lenders or CDCs for failure to follow SBA Loan Program 
Requirements, debarred our suspended over 30 agents or 
representatives from conducting further business with SBA, and 
issued letters to 20 CDCs for failure to meet regulatory 
requirements for minimum loan activity. We continue to actively 
manage these actions, as appropriate.

    To accomplish our responsibilities, OCRM operates with a 
staff of 27 supplemented by five support contracts for reviews, 
exams and enforcement activities. We also remain the primary 
user of the L/LMS contract service that provides credit scoring 
and the lender purchase rating.

    In fiscal year 2016, OCRM will continue to conduct a 
portfolio diagnostic of every lender using historical 
performance, the predictive credit scores for all 7(a) or 504 
loans, and the PARRiS and SMART methodologies to evaluate the 
relationship of each lender's metrics to established 
benchmarks. OCRM will also continue to monitor lenders through 
programmatic risk-based reviews, using PARRiS and SMART to 
target existing and emerging risk, as identified.

    In 2016 OCRM plans to conduct in-depth analyses using SBA's 
loan database to investigate existing risk, identify developing 
risk areas, and to inform program changes under consideration. 
We will be publishing our Final Rule this fiscal year on Agent 
Revocation and Supervision authorities, to strengthen existing 
procedures and align them with other federal agencies.

    SBA also continues in active discussions with primary 
federal regulators on such topics as information sharing and 
vendor management. Through exchange of information we can bring 
improved oversight and monitoring to both our activities and 
theirs, minimizing duplication.

    Thank you for the opportunity to share this information 
today regarding how OCRM supports SBA's role of providing 
access to capital for small business owners of this great 
country. I will be happy to respond to your questions.