[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


        SBA MANAGEMENT REVIEW: OFFICE OF CREDIT RISK MANAGEMENT

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

                                 HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            FEBRUARY 5, 2020

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 116-069
             Available via the GPO Website: www.govinfo.gov
             
                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-556                       WASHINGTON : 2020                     
          
--------------------------------------------------------------------------------------             
           
             
                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania
                       DAN BISHOP, North Carolina

                 Melissa Jung, Majority Staff Director
   Justin Pelletier, Majority Deputy Staff Director and Chief Counsel
                   Kevin Fitzpatrick, Staff Director
                           
                           
                           C O N T E N T S

                           OPENING STATEMENTS

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

                                WITNESS

Ms. Susan E. Streich, Director, Office of Credit Risk Management, 
  United States Small Business Administration, Washington, DC....     3

                                APPENDIX

Prepared Statement:
    Ms. Susan E. Streich, Director, Office of Credit Risk 
      Management, United States Small Business Administration, 
      Washington, DC.............................................    17
Questions and Responses:
    Questions from Hon. Nydia Velazquez, Hon. Steve Chabot, and 
      Hon. Ross Spano to Ms. Susan E. Streich and Responses from 
      Ms. Susan E. Streich.......................................    22
Additional Material for the Record:
    None.

 
        SBA MANAGEMENT REVIEW: OFFICE OF CREDIT RISK MANAGEMENT

                              ----------                              


                      WEDNESDAY, FEBRUARY 5, 2020

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:35 a.m., in Room 
2360, Rayburn House Office Building. Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Finkenauer, Golden, 
Kim, Evans, Schneider, Delgado, Craig, Chabot, Burchett, and 
Hern.
    Chairwoman VELAZQUEZ. Good morning.
    The Committee will come to order. I thank everyone for 
joining us this morning, and I want to especially thank the 
witness for being here with us today.
    This morning, the Committee will examine the management and 
performance of SBA's Office of Credit Risk Management, 
otherwise known as OCRM. It is responsible for conducting 
oversight of SBA's lending programs and its $120 billion 7(a) 
and 504 loan portfolios.
    All of us are acutely aware that access to capital plays a 
vital role in the success of our nation's 30 million small 
businesses. Without it, small businesses cannot stock their 
shelves, pay their employees, or upgrade equipment. Capital is 
the key to unlocking opportunities to grow and create new jobs 
in the local economy. Yet, this Committee has heard from 
numerous small businesses from across the country, and they 
consistently tell us that one of the biggest challenges they 
face is accessing affordable capital.
    The SBA 7(a) loan program plays an essential role in 
filling the gap left by the private markets. In fiscal year 
2019, almost 52,000 small businesses were approved for 7(a) 
loans, injecting over $23 billion in long-term capital into 
local communities across the country and supporting 
approximately 500,000 jobs. To optimize SBA's lending programs, 
SBA established the Office of Credit Risk Management within the 
Office of Capital Access. OCRM conducts reviews of lenders to 
ensure that they are complying with the program requirements.
    While the office played an important role in lender 
oversight, unprecedented growth in the program combined with 
deficiencies identified by GAO in SBA's credit risk management 
prompted congressional action. To that end, Congress passed the 
7(a) Lending Oversight Reform Act, which codified OCRM and gave 
it the tools needed to conduct proper oversight and hold non-
compliant lenders accountable.
    Today, I would like to learn more about how the SBA is 
implementing the legislation. The regulation was expected to be 
finalized months ago, so I am eager to hear when the final rule 
will be published.
    Secondly, I would like to find out what is currently 
working at OCRM, and what more can be done to address the 
ongoing concern the Inspector General has with high-dollar, 
early-default loans, which present a significant credit risk to 
the 7(a) program.
    Finally, I would like to know more about the steps you are 
taking to address the concerns of the Inspector General's 
November report. The report highlighted some areas where there 
is room for improvement, and my motto always is, if it is not 
perfect, let's make it better.
    So, on the heels of that IG report, and in anticipation of 
SBA's budget submission to Congress, this hearing is a timely 
one.
    We look forward to hearing from the Director of the Office 
of Credit Risk Management, Ms. Susan Streich, regarding the 
challenges she has faced since taking over at OCRM, as well as 
whether there are any additional tools Congress can provide 
OCRM as it works to continue strengthening the 7(a) loan 
program.
    Again, I want to thank the witness for being here today, 
and I now yield to the Ranking Member, Mr. Chabot, for his 
opening statement.
    Mr. CHABOT. Thank you, Madam Chair. And thank you for 
holding this hearing.
    Financing for a small business, entrepreneur or startup is 
the fuel that turns the Nation's economic engine on and propels 
it forward. It can be the key to transforming an idea into the 
next great American product or service.
    Unfortunately, as our economy moves forward, access to 
capital remains one of the top challenges for the Nation's job 
creators. When financing options are limited, small business 
have the option of turning to the SBA, the Small Business 
Administration, and its numerous lending programs. These 
public-private partnerships offer government guarantees based 
upon a multitude of factors. Annually, these programs provide 
capital assistance to small businesses all across the country, 
including in America's greatest state, Ohio.
    However, with any Federal Government program, vigorous and 
comprehensive oversight is mandatory to safeguard American 
taxpayer dollars.
    While this Committee conducts congressional oversight, the 
SBA also dedicates an entire operating unit to this endeavor. 
The Office of Credit Risk Management is charged with overseeing 
lending partners and monitoring program risk. Last Congress, 
the Chairwoman and I led efforts to codify this office and to 
ensure that it remains a top priority moving forward.
    That is why it is critically important that the office's 
director is testifying today. I am looking forward to a 
productive conversation that examines each program's 
performance and each program's risk. Additionally, I would like 
to hear how last Congress's oversight bill has been implemented 
and whether it has provided the tools necessary to access and 
to assess and guard against risk within the 7(a) loan program.
    Each program is unique. Thus, each program requires its own 
specific oversight plan. I am looking forward to examining each 
program at this hearing. The timing of this hearing is 
fortuitous because in the coming days we will receive the 
President's budget and each agency's congressional budget 
justification which will include fiscal year 2021 requests. 
These important documents add another layer to the monitoring 
of these programs.
    I know this Committee would like to continue to work with 
the SBA to ensure these programs run effectively and 
efficiently on behalf of the small businesses that truly need 
the SBA's services.
    I want to thank the witness for joining us this morning. I 
welcome the conversation, and I yield back, Madam Chair.
    Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. The gentleman 
yields back.
    If Committee members have an opening statement, we would 
ask that they be submitted for the record.
    I would like to explain the timing rules. The witness gets 
5 minutes to testify and members get 5 minutes for questioning. 
There is a lighting system to assist you. The green light comes 
on when you begin, and the yellow light means there is 1 minute 
remaining. The red light comes on when you are out of time, and 
we ask that you stay within that timeframe to the best of your 
ability.
    I would now like to introduce our only witness today.
    Our witness is Susan Streich. Susan joined the SBA in 2016 
as Director of the Office of Financial Program Operations, part 
of the Office of Capital Access. She became director of the 
Office of Credit Risk Management in 2017. Prior to joining the 
SBA, Susan spent her distinguished career engaged in SBA 
lending, working with a diverse array of financial services 
organizations, including a 7(a) bank, a CDC delivering the 504 
program in Arizona, and a small business lending company with a 
national footprint. More recently, Susan served in senior 
consulting roles with Booz Allen Hamilton and NFI Consulting, 
leading projects with USDA's Office of Rural Development and 
the U.S. Treasury's CDFI Fund.
    Ms. Streich, you are now recognized for 5 minutes. Thank 
you for being here.

STATEMENT OF SUSAN E. STREICH, DIRECTOR, OFFICE OF CREDIT RISK 
    MANAGEMENT, UNITED STATES SMALL BUSINESS ADMINISTRATION

    Ms. STREICH. Thank you, Chairwoman Velazquez, Ranking 
Member Chabot, and members of the Committee for inviting me to 
speak today. It is my pleasure to appear before you as we start 
this new calendar year.
    As director of SBA's Office of Credit Risk Management, or 
OCRM for short, I am responsible for the oversight of lenders 
participating in the Small Business Administration's business 
loan programs.
    I bring to this position over 37 years of lending 
experience and a commitment to the small business community and 
the lending partners that serve them.
    In 2016, I was selected by SBA to serve as director of the 
Office of Financial Program Operations in the Office of Capital 
Access. While in that position, I successfully oversaw SBA's 
loan origination servicing and liquidation operations. In 2017, 
I became the acting director of OCRM, and was made permanent 
director 3 months later by then-administrator Linda McMahon.
    OCRM is responsible for developing and implementing 
effective risk management practices and overseeing SBA loan 
programs and lender participants. The four main 
responsibilities of my office are to provide lender oversight, 
monitor the entire 7(a) and 504 loan portfolios for 
performance, administer enforcement and supervision of SBA 
approved lenders, and when necessary, suspend or debar program 
participants.
    In 2018, Congress passed the Small Business 7(a) Lending 
Oversight Reform Act, which statutorily codified the existence 
and responsibilities of OCRM.
    I want to thank Congress, and particularly the members of 
this Committee, for their work on this very important 
legislation.
    The 2018 legislation required SBA to promulgate regulations 
to implement certain provisions of the law. The agency has 
pursued this rulemaking in a diligent manner and published the 
proposed Lender Oversight Rule in June 2019, 1 year following 
enactment of the law. The final rule is expected to be 
published by the end of the month.
    Over the last 2 years, OCRM has also been seeking ways to 
better fulfill its mission while adapting to the current 
lending environment. OCRM has accomplished this by improving 
its operations, as well as by bringing on additional staff.
    In 2019, OCRM implemented nationwide expansion of the 
Lender Oversight Pilot Program so that one team is overseeing 
all federally regulated 7(a) lender participants. This national 
rollout created a consistent review methodology across the 
Nation, improving lender oversight and resulting in a more 
robust, effective and efficient lender review process. This 
program enhancement was coupled with a renewed focus on 
customer service with program participants.
    OCRM is increasing its number of personnel from 36 to 42 
staff members in order to better fulfill its mission. OCRM has 
built strong and collaborative relationships with the Federal 
Deposit Insurance Corporation and the Office of the Comptroller 
of the Currency as part of its lender oversight activities. 
These partnerships with the primary Federal regulators for 
lenders have enabled OCRM to fulfill its mission and enhance 
its effectiveness in providing lender oversight of SBA program 
participants.
    I want to briefly touch upon the report that SBA's 
Inspector General released in 2019 regarding the oversight of 
high-risk lenders. The report covers lender oversight practices 
from 2015 to 2017, which was before I took my role as director 
of OCRM. The report offers six recommendations to improve 
oversight activities. We are in the process of addressing those 
recommendations and will continue to address the concerns 
raised in the report.
    Finally, I want the Committee to know that OCRM is pursuing 
several significant goals during the current fiscal year to 
improve its ability to proactively monitor portfolio 
performance and identify and mitigate lender risk. These 
include adding microloan intermediary oversight capabilities by 
the end of this fiscal year; publishing the final lender 
oversight rule by the end of next month; revising our two OCRM 
SOPs, SOP 5053, which is the Supervision and Enforcement SOP 
and SOP 5100, which is our examination manual; and continuing 
to enhance our partnerships with the FDIC and OCC.
    Thank you, Chairwoman Velazquez and Ranking Member Chabot, 
for inviting me to testify here today. I look forward to 
answering your questions and continuing our work together with 
you to ensure proper oversight of SBA loan programs.
    Chairwoman VELAZQUEZ. Thank you, Ms. Streich.
    I will begin by recognizing myself for 5 minutes.
    Last June, the SBA published a proposed rule to implement 
the 7(a) Lending Oversight Reform Act. The agency received 35 
comments from the public in response to the proposal. Can you 
describe the nature of the comments OCRM received in response?
    Ms. STREICH. Thank you. Okay, sorry.
    I do not have that information, that level of granularity 
with me today. I would be happy to get that for you if you 
would like.
    Chairwoman VELAZQUEZ. Sure, thank you.
    I am happy to hear that the rule will be published at the 
end of this month. Will the rule be significantly different 
from the proposed rule, the final rule?
    Ms. STREICH. No. Not in my estimation. Not significantly 
different.
    Chairwoman VELAZQUEZ. Okay. The IG has an ongoing high-risk 
7(a) loan review program to see if high dollar 7(a) loans that 
defaulted early were originated, closed, and complying with 
SBA's rule. The IG has identified numerous such loans that have 
created a considerable credit risk to the agency. What specific 
action items are you taking to make sure noncompliant lenders 
are held accountable?
    Ms. STREICH. So Chairwoman Velazquez, the primary 
responsibility for that activity actually resides with my 
former team, the Office of Financial Program Operations, and 
they work closely with the OIG on those issues throughout the 
year and try to resolve them as quickly as they can.
    Now, how it impacts OCRM, as we are involved in lender 
oversight and reviews for those lenders that have actually 
originated those loans, we are looking and collaborating with 
our team members over an OFPO to see how we can actually build 
upon what they are learning and make sure that we are 
collaborating and learning from one another how we can help 
coach that lender into doing the right thing from a compliance 
standpoint going forward.
    Chairwoman VELAZQUEZ. The Oversight Act gave you additional 
tools to deal with program violations. How, and how often have 
you used them?
    Ms. STREICH. We have approximately, in a variety of ways, 
ma'am, we have approximately 40 lenders on the watch list, 
which means that they are under increased supervision. That 
list changes almost monthly depending upon----
    Chairwoman VELAZQUEZ. What type of supervision? Are you 
coaching them? Informal mechanism or----
    Ms. STREICH. It involves everything from voluntary 
agreements with them to stand down on use of delegated 
authority or PLP authority, to standing by on sale of any loans 
in the secondary market without our view and permission of each 
and every loan transaction. So, it can be a pretty significant 
impact on those lenders. Many of those lenders are under orders 
from their primary federal regulators.
    And then we have additional informal and formal actions 
under way right now. I cannot be specific as to what they are 
as you might know because they are confidential. And we have 
additional supervision actions that we take, including when we 
are conducting a review of a lender and we have concerns about 
the performance that is exhibited both operationally for them 
and in deficiencies in the loan review process. We will call 
them in to headquarters and have a conversation with them and 
give them some kind of an action plan to work with us on.
    Chairwoman VELAZQUEZ. How many lenders are you dealing with 
in this category?
    Ms. STREICH. Probably close to 125 at this point in time.
    Chairwoman VELAZQUEZ. Ms. Streich, as you may know, earlier 
this summer an SBA loan broker pleaded guilty to SBA loan fraud 
amounting to more than $100 million and was sentenced to prison 
for 9 years. Back in 2013, a codefendant was sentenced to 15 
years and ordered to pay restitution of $91 million. Clearly, 
keeping track of loan brokers and agents like this is a 
challenge for the SBA. How effective is the current mechanism 
for tracking loan brokers and agents? Please comment on its 
effectiveness.
    Ms. STREICH. Thank you, ma'am.
    Two things to think about here. One is that I am the 
suspension and debarment agent's agent for the SBA for all 
financial programs. I have the ability with OIG and OGC 
participation to take suspension and debarment actions against 
individuals that have received convictions or even indictments 
that we are concerned that should get out of the lending 
industry entirely. And we do take those actions regularly.
    Chairwoman VELAZQUEZ. Have you taken such actions?
    Ms. STREICH. Yes. Yes.
    The risk that loan agents pose to the agency is something 
that we are constantly monitoring. About 11 percent of the 
portfolio in 7(a) has been generated through loan agent 
activity. We work closely as the FDIC and the OCC guidance has 
been provided to their lenders. We work closely with the 
lenders involved that have those contractual relationships with 
loan agents, and we work with them to see how they are managing 
the third parties that they retain, including loan agents. When 
we have an upcoming review of a lender, we ask them if they 
have third parties involved in their SBA loan operation at any 
stage. If we do find out that they do have third parties, we 
get copies of the loan agreements that they have, the contracts 
that they have with those agents. We review those as part of 
our overall review, and then for each one we ask them to 
complete a nine-page questionnaire to give us much more detail 
about what is going on with that lender relationship and what 
services they provide. That gives us a great deal of 
information. That just began about the last 6 months so we do 
not have lots of comprehensive data yet, but we are gathering 
it in hopes that it will give us insight into how we can manage 
that and monitor that more closely.
    Chairwoman VELAZQUEZ. So last point.
    Ms. STREICH. Yes.
    Chairwoman VELAZQUEZ. Do you have enough staff to keep 
track of loan brokers?
    Ms. STREICH. Ma'am, I think it depends on what you mean by 
``keep track.'' In terms of monitoring the risk on the 
portfolio and the performance for lenders, yes, at this point 
we do.
    Chairwoman VELAZQUEZ. Okay.
    Now, we recognize the Ranking Member.
    Mr. CHABOT. Thank you, Madam Chair.
    Thank you for being here today, Ms. Streich.
    As you know, Congress passed, and President Trump signed 
into law the Small Business 7(a) Lending Oversight Reform Act 
in the last Congress. While there are many provisions in the 
law that strengthen the SBA's ability to oversee risk, I want 
to touch on just one that is essential for the program to serve 
small businesses that truly need the SBA's resources.
    Could you walk the Committee through the credit elsewhere 
test and how your office monitors that?
    Ms. STREICH. So the legislation that you passed last year 
and I would expect we will see something like this in the rule, 
and we have SOPs that designate what the credit elsewhere rule 
means and how lenders comply with it. And it is very specific 
in the SOP 50 10(5)(K). And we apply and interpret that in our 
reviews of lender files so that we can determine whether or not 
they are actually maintaining compliance with credit elsewhere.
    The challenge with credit elsewhere, frankly, has been that 
we do not have an easy, automated, electronic solution at this 
point in time to check the box and determine how many of each 
reason for credit elsewhere not being available the lender may 
have actually checked. So, it is a bit of a manual exercise for 
us right now in the loan review process.
    Just to give you an idea of the volume of loan files that 
are reviewed, the federally regulated team reviewed 2,000 loan 
files last fiscal year, and that did include the SBA supervised 
loan files that were reviewed, each and every one. We are 
manually keeping that information on spreadsheets at the moment 
in hopes that eventually we will be able to actually have a 
database that we can include that information on and make it 
easier to query and gather that information and share it with 
you more specifically.
    Mr. CHABOT. Thank you.
    How often does it occur that lenders violate the credit 
elsewhere test?
    Ms. STREICH. It is interesting that you would ask that. We 
had a meeting about this just the other day, wrapping up 2019 
reviews, some of which the reports, or some of them are still 
getting completed and getting out. And we only have one lender 
in all of 2019 that really, in your opinion, was egregious with 
regard to not documenting credit elsewhere to our satisfaction, 
and we have talked to that lender.
    Mr. CHABOT. That is good to hear. Thank you.
    Congress was notified this time last year that the 7(a) 
loan program required a $99 million subsidy to continue 
operating in fiscal year 2020. In the coming days we are set to 
receive the fiscal year 2021 number. Will the 7(a) loan program 
and/or the 504 CDC loan program require a subsidy moving 
forward?
    Ms. STREICH. I am sorry; I will not be able to answer that 
question. The Office of Capital Access and OCRM are not 
involved in determining what the subsidy model components are 
and how it is going to be developed. That really resides with 
our OCFO office.
    Mr. CHABOT. Expecting, anticipating that answer, let me ask 
the question in another way.
    How have the 7(a) loan program and the 504 loan program 
performed this year compared to last year?
    Ms. STREICH. So I would say that overall the entire 
portfolio is performing well, both in 7(a) and 504. 504 
defaults are at a remarkable low level, remarkably low level. 
7(a), we have seen early defaults in 7(a) creeping up slightly 
year over year, but not changing dramatically and are not 
presently a cause for concern.
    Mr. CHABOT. Okay. Thank you.
    As you stated in your testimony, the SBA lending programs 
are reserved for ``creditworthy small businesses that otherwise 
would not be able to access capital to start or expand their 
business.''
    We want to continue to work with your office to ensure the 
appropriate small businesses have access to these programs. 
What, if any, additional tools do you think that you might need 
at your disposal to meet this mission? Anything come to mind?
    Ms. STREICH. Thank you very much for asking.
    I think at this point we are still trying to digest all the 
changes that have come about because of the act that you all 
were so wonderful to provide for us and the additional 
authority provided to us. We are actually also making changes 
organizationally and functionally to make sure that we can do 
everything from a regulatory standpoint that we are changed 
with and do it well. Obviously, interest and sustaining a 
program integrity for the long term and serving the needs of 
the small businesses who really need access to capital. So, I 
think we need a little more time to digest everything before I 
can recommend anything new that we might need in terms of 
authority.
    Mr. CHABOT. Thank you very much.
    Since I am in single digits as how much time I have left, I 
am going to yield back rather than go over here. Thank you. I 
yield back.
    Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
    Now we recognize the gentleman from Pennsylvania, Mr. 
Evans, for 5 minutes.
    Mr. EVANS. Thank you, Madam Chairperson.
    For the 7(a) loan program, SBA is not the direct lender. 
Instead, it relies on private sector lenders, and these private 
sector lenders are mostly banks. But it also includes small 
business lending companies. FinTech lending has become 
increasingly popular for small businesses looking for loans. 
Are there any plans for the SBA to engage with FinTech lenders, 
and do you think it should?
    Ms. STREICH. Thank you for the question. I appreciate it 
very much.
    We have talked to a number of FinTech lenders through the 
course of the last couple of years. There is not an easy 
relationship between what they do and what we do at this point 
in time, but we are learning from one another. And the result 
of just that concept of quick decisioning and Internet-based 
applications has helped foster the lender Match program at SBA. 
You may have heard about that. It is an online application that 
is actually free to the borrower or the proposed borrower and 
enables a number of lenders participating in the 7(a) program 
to review applications that come in right to the SBA website. 
It is a very successful program. It is actually going forward 
and being improved now. And by the end of, I believe, March, we 
are going to have a Spanish version of Lender Match.
    Mr. EVANS. So you are going to engage with FinTechs?
    Ms. STREICH. It is a very similar approach to the FinTech 
solution because it is an Internet-based application. Yes, that 
is similar. We not really working one of the FinTechs to do 
this, however.
    Did I answer your question, sir?
    Mr. EVANS. Yes, you did.
    Ms. STREICH. Okay.
    Mr. EVANS. In your written statement you said that your 
office participates in informal and formal enforcement actions, 
including volunteer agreements and suspensions from 
participation in SBA programs. How many enforcement actions did 
your office initiate in 2019? And what were the nature of these 
actions?
    Ms. STREICH. In 2019, we had informal and formal 
enforcement actions. I think it was five. We have since then 
taken additional actions in fiscal 2020 and we are continuing 
to be rigorous in our approach to suspension and enforcement 
activities. The informal activities generally involve calling a 
lender into a headquarters meeting, which is actually a very 
serious occasion wehore we sit down with them and we ask them 
if they understand why they are not compliant with our 
requirements and what we can do to get them on track. We want 
them on a compliant path, obviously, to go forward.
    And then secondly, we have voluntary agreements. So if it 
is a PLP lender, a preferred lender that has delegated 
authority, we will ask them to please stand by in delegated 
authority and submit all of their loan applications to the 
center in Citrus Heights for their review, underwriting, and 
approval. So, we can track through the center how they are 
performing in terms of application activity. Are their 
applications complete? Do they really catch everything from a 
credit administration standpoint in the credit memo? Do they 
follow up and abide by the credit elsewhere criteria? All of 
that can be checked by the center and they feed that 
information back to us. When we think that they have solved 
their problems and they are performing well, then we are 
willing to let them use delegated authority again, but not 
until then.
    Mr. EVANS. This is somewhat of a piggyback on the 
Chairwoman's question earlier about resources. The 7(a) loan 
program has made rapid growth in recent years, and in fiscal 
2012, the program approved $15.2 billion in loans. By fiscal 
2017, that number increased to $24.5 billion.
    Ms. Streich, how has your office adapted to this rapid 
growth? And does it need additional resources to provide 
effective oversight of credit risk?
    I think what I heard you when you were responding to the 
Chairwoman, you said, kind of gave an answer that was not that 
clear to me.
    Ms. STREICH. Okay. Happy to have to provide additional 
information.
    We have a great data warehouse called the Loaner Lender 
Monitoring System, LLMS for short. It is managed for us by Dun 
& Bradstreet. And that system provides great data analytics for 
us to measure performance by loan, by loan segment, by 
industry, by industry type, by geography and a variety of other 
segmentations that we can perform of the portfolio to identify 
where risk is in the portfolio, where emerging risk may be, and 
then what we need to do to mitigate it. So that information is 
readily available from LLMS. And we use that information 
weekly, monthly, quarterly, semi-annually, and annually in 
intense deep drives into certain aspects, segments of the 
portfolio give us great data to use to determine what kind of 
course of action we as a risk identifying and mitigating group 
have to proceed to make sure that we have managed risk in the 
portfolio for 7(a).
    Did I do a better job of answering that question?
    Mr. EVANS. I yield. Yes.
    Chairwoman VELAZQUEZ. The time has expired.
    Mr. EVANS. I yield. Yes. Thank you.
    Chairwoman VELAZQUEZ. Now, we recognize the Ranking Member 
of the Subcommittee on Economic Growth, Tax, and Capital 
Access, the gentleman from Oklahoma, Mr. Hern.
    Mr. HERN. Thank you, Madam Chairwoman, Ranking Member 
Chabot.
    Director Streich, thanks for being here.
    As the Ranking Member of the Small Business Committee, 
Subcommittee on Economic Growth, Tax, and Capital Access, I 
understand the need for small businesses and entrepreneurs to 
obtain access to capital. Additionally as a founder of a small 
community bank, I also understand that heavily financial risk 
involved with lending and loan programs such as this, sort of a 
loan of last resort, if you will, I have experience with both 
the banking and the business side. I find that it is essential 
that we have the necessary checks and balances in place to 
ensure that the SBA's loan programs are being properly executed 
and that the government is not being taken advantage of due to 
lack of oversight. So, thank you.
    As you know, the 7(a) loan program gives small businesses 
the opportunity to gain access to capital who often do not have 
the capacity to gain funding on their own. This successful 
program has provided nearly 52,000 loans for small businesses 
and entrepreneurs across the country, and the program operates 
by taking fees which allow the SBA to run the loan program 
efficiently while also protecting our taxpayers.
    These built-in fees meant to cover all program costs have 
been sufficient until recently as the 7(a) program claimed the 
need for a $99 million subsidy in fiscal year 2020.
    As someone who has successfully managed budgets his whole 
life this was very concerning. It was concerning for every 
member on the panel, the Chairwoman, both sides of the aisle 
here. To go from self-sufficiency to reliance on a $99 billion 
subsidy leaves me with numerous questions including the 
following.
    And I appreciate it. I have been listening to you for short 
minutes here and you have got answers. When your former CFO was 
here, he seemed not to have any answers to the tough questions, 
so thank you for coming prepared to answer questions today.
    Director Streich, what performance characteristics 
contributed to the 7(a) loan program needing subsidy? Was it 
performance decline? What are you seeing today? You have 
described some of those as I was walking in here. Could you 
talk to us about what are you needing?
    Ms. STREICH. So, Congressman, I do not have specific 
information into the components, into the subsidy model that 
was created by our OCFO office in conjunction with OMB. That 
information is closely held, and they segregate that away from 
those of us that actually are involved in the capital access 
for purposes of, you know, making sure that----
    Mr. HERN. But you are in credit risk----
    Ms. STREICH. Right.
    Mr. HERN. And I do not want this to be confrontational, but 
you are in credit risk. So, you look at a lot of actuarial 
data, historical data. We do not ever throw that away. You 
described a growing economy. You described a default rate that 
you are collecting your monies. And so, it is hard for us I 
think, I do not think most members' thoughts have changed on 
this because we have not had anything to change it. The economy 
has even gotten better. We have not heard a lot, or anything 
about business failure. So, what, in your assessment of credit 
risk, there has to be some thoughts about what would go on to 
drive this need for extra money to some mythical credit risk.
    Ms. STREICH. So let me go back to my banking and lending 
days and running a SBA loan production center, and talk to you 
about just the countercyclical nature of SBA loans because I 
think that will be helpful.
    During the Great Recession, SBA lending really took off and 
we put in the portfolio a lot of really high creditworthy 
borrowers because the banks and others, as you might recall, 
stopped doing lending almost entirely. So, the only way some of 
these borrowers could get money was through the SBA loan 
program.
    As a result, with the economy being strong, those loans 
performed really well. Now, those loans are refinancing and 
going conventional because the conventional credit box during a 
strong economy has actually been opened up as a lender. If you 
have a conservative credit box during tough times, you have a 
more open credit box as you probably did at your community bank 
during good times. And as a result, more loans are going 
through that process conventionally, which is really the 
purpose of the program. And then we are getting loans that may 
be a little higher risk and falling outside of the 
conventional, the new conventional credit parameters.
    Mr. HERN. If I may stop you because I have got one other 
question, but I like the word you just put in there, may be. 
They have not proven to be, and so they are not based on really 
historical facts. They are based on presumption. And so, we 
have not seen that yet.
    Let me ask you this last question before we lose our time 
here.
    As a result of the 7(a) loan program having a subsidy, what 
has your office done to ensure taxpayer dollars are being 
protected moving forward?
    Ms. STREICH. So we identify through each of our lender 
reviews targeted and full reviews, we pull credit files, loan 
files from the lenders and we review each and every page of 
each and every file, usually thousands of pages, to make sure 
that they are being compliant with SBA's requirements. If we 
identify deficiencies during those loan file reviews, we 
communicate that information back to the centers that are 
involved in the operations side, the origination and the 
Guaranty Purchase Center. Through the cron, which is an 
electronic communication tool, we tell them where to focus 
their attention. If that loan goes into default and ends up 
with a purchase request to honor the guaranty, the NGPC, which 
is the National Guaranty Purchase Center in Herndon, then that 
financial analyst that pulls that information up on the cron 
can go right to that part of the file, identify whether there 
is a deficiency that is material, and if so, can either repair 
or deny the guaranty. That enables us to make sure that we are 
not providing taxpayer dollars unnecessarily and 
inappropriately to a lender who has done the wrong thing.
    Mr. HERN. Thank you.
    Madam Chairwoman, if I may, I would like to recognize the 
fact that the SBA sent somebody that actually has answers to 
some of our questions. I really appreciate that. This is a 
refreshing follow up to the former member that was here. Thank 
you.
    Chairwoman VELAZQUEZ. Thank you.
    Time has expired. Now we recognize----
    Mr. CHABOT. We do not complement witness around here that 
much, so that is pretty good.
    Mr. HERN. That is a rarity. Thank you.
    Chairwoman VELAZQUEZ. The gentleman from Illinois, Mr. 
Schneider, for 5 minutes.
    Mr. SCHNEIDER. Thank you, Madam Chairwoman. Thank you for 
having this hearing.
    Ms. Streich, thank you for being here. I will echo the 
comments of my colleague, Mr. Hern. I think that is important.
    He was touching on some important issues. As you related, 
the countercyclicality of the portfolio within the SBA. And as 
the economy is growing, access to capital is still critically 
important, especially for small businesses who enter 
conventional lending markets to tell their story. Often, they 
may not have the track record of a larger business or a more 
tenured business. It is a startup. And so, these opportunities 
are vitally important to continue to grow our economy.
    At the same time, while I think it is important that SBA 
lending be easily accessed, efficient, effective, we need to 
monitor and manage the credit. As you were implementing the 
recommendations of the OIG report as you look to the future 
what are some of the key things that we need to do to make sure 
that we are protecting against in appropriate risk, identifying 
and addressing when lenders are behavior inappropriately, but 
making sure that we maintain that access for small businesses 
to get the capital they need to grow their businesses.
    Ms. STREICH. That is a great question. One of the 
challenges that we are working with across all of our capital 
access team, especially our Office of Financial Assistance and 
our Office of Financial Program Operations is what kind of 
additional training we can provide to lenders on a regular 
basis through our district offices, through the Office of Field 
Operations, as well as directly. We did 16 conferences last 
year alone, both at district level, regional, and trade 
associations. We do webinars regularly. The whole goal is to 
make sure that lenders do not do the wrong thing. Do not make a 
misstep. There is nothing worse if you are a small business 
person relying upon your bank to be judicious in the amount of 
credit they are willing to give you than to have them give you 
too much, you cannot afford to repay it, and all of a sudden 
then you are in trouble.
    Mr. SCHNEIDER. Right.
    Ms. STREICH. Right? So, we used to say, very similari to 
the medical community, at first, do no harm. Right? And so, one 
of the things that we have seen in our reviews of certain loan 
files for certain lenders this last year, is that, in fact what 
is happening in part is smaller transactions are being 
overfunded. And as a result, the borrowers are not able to 
repay that entire amount. They probably could have gotten away 
with significantly less money and it would have been much more 
affordable for them. So it is our job, in part, to make sure 
that we are working with the trade associations and the 
districts and all other opportunities to provide that kind of 
insight and feedback to the lenders to get them to make sure 
that they are actually making good, judicious credit decisions.
    Mr. SCHNEIDER. I think that is important. Oftentimes here 
we are talking about unconventional ideas, unconventional risk. 
That does not mean they are inappropriate, that does not mean 
they are outside the range of what is an acceptable risk. But 
if you take them too far, I like to say, I grew up near the 
mountains and I am very comfortable driving on mountain roads. 
I tend to keep both wheels on the road and in the center. I try 
not to go too far to the edge, and that is what I want these 
small businesses to be able to do, is to take the risk, to make 
the ascent, but to do it in a way that is supported by the 
lender. So, I think it is important to communicate that.
    Taking that a step further, how do we make sure that--and 
this may be outside your role--that the lenders are getting out 
to the marketplace so that small businesses understand what is 
available to them. That there is an opportunity to get capital, 
to fund their ideas and invest in their business, but to do it 
in a way that is prudent and appropriate for them.
    Ms. STREICH. That is an interesting question.
    When I started in this business, in 1981, as a 503 lender, 
nobody knew what SBA was, but they were horrified that they 
might, as a small business borrower, need to access any capital 
through the SBA. It was a terrible reputation. So, we had to 
try to figure out how to sell everything by developing some 
kind if credibility with the small business borrower first.
    That is not true today. Today, wherever I go, I like to 
talk to entrepreneurs--restuarants, my physical therapy 
office--I like to ask them, you know, how did you get to this 
point? And I love hearing them say, well, I got an SBA loan. 
And then I always ask them from whom? Because I just like to 
know who is active in each marketplace. And I just think it 
just speaks to the fact that many lenders really like this 
program. And they really are out there offering it to the 
marketplace in a very active way. That is wonderful. They are 
an adjunct to our educational opportunity for the marketplace.
    Mr. SCHNEIDER. And just to close, I am a little bit past my 
time, but the role that we can play as members of Congress 
engaging in our community, we have seminars, roundtables. We 
bring entrepreneurs together to say, hey, we can make a 
difference, and I look forward to continuing that.
    I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Tennessee, Mr. 
Burchett, for 5 minutes.
    Mr. BURCHETT. Thank you, Chairlady, Ranking Member. It is 
always a pleasure being here, ma'am. And thank you, ma'am, for 
being here with us.
    Let me make sure I have got the name right. Streich. Is 
that how you say it?
    Ms. STREICH. Just like strike three and you are out. Yes.
    Mr. BURCHETT. All right. Well, Burchett. Just like the 
tree, birch like the tree, and ett like I just ``ett'' lunch. 
Which I did not, but the Chairlady always promises me she is 
going to bring me a meal, but she never does, so anyway. That 
is just what happens here in Congress, I guess.
    Does the Office of Credit Risk Management need any 
additional oversight tools to further protect our taxpayer 
dollars within the microloan program? And if so, what would you 
request?
    Ms. STREICH. That is a great question. I cannot answer it 
today. We have as our goal to take on microlender oversight in 
2020 but we are just starting to recruit for that position, and 
we will be taking over the oversight that the program office 
has been engaged in heretofore. So, in another 3 to 6 months I 
will be able to probably answer that question much better than 
I can today.
    Mr. BURCHETT. Okay. That was an honest answer. So, thank 
you.
    Let me ask you one more. What is the current oversight plan 
that the Office of Credit Risk Management has in place to 
oversee the microloan program?
    Ms. STREICH. So microlenders, as you know, are 
intermediaries for us. We provide a loan to them and they 
actually provide the loans to microlending opportunities, and 
they are usually within their community. And they do that very 
well. Their performance overall has been very stellar in terms 
of their portfolio. And what we want to be able to do is 
examine what they are doing, make sure it is compliant with any 
requirements that the SBA has for their performance, and make 
sure that they are servicing those loans very, very well and 
diligently. And if we request information or access to their 
files that they will allow us to have a chance to look at them. 
Very basic.
    Mr. BURCHETT. Thank you, ma'am.
    Chairlady, Ranking Member, I yield back the remaining 2 
minutes and 59 seconds of my time. Please use it wisely as I 
know you will.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Maine, Mr. Golden, for 
5 minutes.
    Mr. GOLDEN. Thank you, Madam Chair.
    Director Streich, thank you for being with us today.
    I want to follow up on an earlier conversation you were 
having. Does SBA assign loan brokers and agents with unique 
identifiers to systematically track their activity?
    Ms. STREICH. Not at this time. No, sir.
    Mr. GOLDEN. And would there be any benefit to your office 
in carrying out your role if you were to do that?
    Ms. STREICH. I do not believe so at this time. We have a 
variety of tools available to us to track loan agent 
performance by lender that they have relationships with. One 
way is through the review process, and we ask the lender to 
provide a great deal of information, including the agreements 
that they have with those loan agents. We review those and see 
what kind of relationship there is and what kind of services 
are provided and what kind of fees are being charged and to 
whom. We also have the Form 159, which is a form that really 
gives us a great deal of information for any fees that are 
charged during the course of a loan origination, whether it is 
by the lender or by a loan agent. And we use that information 
and are just starting to aggregate that so we can determine and 
monitor loan agent risk and performance of each individual loan 
that they have referred into a specific lender. If we see that 
there is a trend that a lender specifically with a relationship 
with a loan agent is experiencing challenges with their 
portfolio performance, then we are talking to them about why 
they are continuing to accept referrals from that loan agent 
if, in fact, their performance is less than adequate.
    Mr. GOLDEN. You have a good level of confidence that you 
are pulling in the information that you need to have visibility 
and that it is compiled in a way that is easy for you and your 
staff to put it to good use?
    Ms. STREICH. Well, we are certainly getting the 
information. We are still working on the best way to compile it 
and access it so that it is easier to automate and 
electronically available to us.
    Mr. GOLDEN. Thank you very much.
    Chairwoman VELAZQUEZ. Well, Ms. Streich, thank you very 
much. It is like a breath of fresh air to bring someone from 
the Administration, at SBA, that really provides the facts and 
is able to provide the answers to our questions. I really feel 
confident that you are doing a very good job. Thank you.
    We have now learned more about a key function of the SBA's 
capital access programs and one without which the programs 
could function effectively. However, we have also learned that 
there is more work to be done towards ensuring proper oversight 
and accountability over SBA's partner lenders. If we intend to 
continue enhancing access to affordable capital for small 
businesses, it is clear SBA's Office of Credit Risk Management 
will be a key stakeholder.
    I look forward to working with my colleagues from across 
the aisle as we continue to work to enhance the efficiency of 
SBA's operations and more broadly, to continue enhancing access 
to capital for America's small businesses.
    I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    If there is no further business to come before the 
Committee, we are adjourned. Thank you.
    [Whereupon, at 12:25 p.m., the Committee was adjourned.]
                            A P P E N D I X

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]	

                                 [all]