[House Report 106-278]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-278

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



 
     CERTIFIED DEVELOPMENT COMPANY PROGRAM IMPROVEMENTS ACT OF 1999

                                _______
                                

 August 2, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


    Mr. Talent, from the Committee on Small Business, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2614]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 2614) to amend the Small Business Investment Act to 
make improvements to the certified development company program, 
and for other purposes, having considered the same, report 
favorably thereon without amendment and recommend that the bill 
do pass.

                                Purpose

    The purpose of H.R. 2614 is to amend the Small Business 
Investment Act to make changes in the Certified Development 
Company (CDC) loan program at the Small Business Administration 
(SBA), commonly known as the 504 loan program. H.R. 2614 
contains a variety of technical and substantive changes to 
improve the program and correct problems brought to the 
Committee's attention through the oversight process.
    H.R. 2614 will increase the maximum amount of a 504 loan, 
and its underlying debenture, to $1 million from the current 
limit of $750,000 in order to keep pace with inflation. The 
maximum amount for loans with specific public policy purposes 
(low-income, rural, and minority owned businesses) is increased 
to $1,300,000. The loan amount was last increased in 1988. H.R. 
2614 will also reauthorize the fees which support the 504 
program.
    H.R. 2614 will also include women-owned businesses as a 
specific public policy goal for the 504 program. H.R. 2614 will 
make permanent two pilot programs begun by SBA in 1997 in 
response to a Congressional mandate. The first pilot program, 
the Liquidation Pilot Program, enables certain qualified 
Certified Development Companies to liquidate their own loans 
rather enduring the usual process of SBA controlled 
liquidation. The second, the Premier Certified Lenders Program, 
enables experienced CDCs to use streamlined procedures for loan 
making and liquidation.

                          Need for Legislation

    It has been ten years since the Committee acted to increase 
the maximum guarantee amount in the 504 program. To keep pace 
with inflation, the maximum guarantee amount should be 
increased to approximately $1,250,000. However, the Committee 
believes that a simple increase to $1,000,000 is sufficient. 
This increase is especially needed in the 504 program because 
it is primarily a real estate based program, and the cost of 
commercial real estate has increased markedly in the last 
several years.
    The 504 program currently operates with a zero subsidy 
rate. Like other credit programs, pursuant to the Budget Act of 
1990, the 504 program is funded according to Office of 
Management and Budget calculations of the annual taxpayer 
subsidy cost of the program. This subsidy cost is calculated by 
an estimation of the net present value of one year's loans plus 
fees and recoveries from defaulted loans minus losses. Losses 
are estimated based on historical assumptions. The fees in the 
504 program cover all these costs, resulting in a program that 
operates at no cost to the taxpayer. H.R. 2614 will reauthorize 
these fees.
    H.R. 2614 adds women-owned businesses to the current list 
of businesses eligible for the larger public policy oriented 
loans of up to $1,300,000. This continues the Committee's 
efforts to increase SBA's assistance to women-owned businesses. 
The Committee has noted the increasingly important role women-
owned businesses play in the economy and believes this change 
is needed to ensure the expansion of this sector of our 
economy.
    The Committee notes the improvements in the 504 program 
that have occurred as a result of statutory changes implemented 
by the Congress in 1996. The SBA has begun to appreciate the 
value of the 504 program in the small business community and 
the Committee is pleased to note a more cooperative and 
constructive attitude has entered into the dealings between the 
SBA and the CDCs.
    The Committee is particularly pleased with the results of 
the Premier Certified Lender Program pilot and the Liquidation 
Pilot Program. Both of these programs have shown the benefits 
of granting increased lending and liquidation authority to the 
CDCs. Based on preliminary reports, the Committee is pleased to 
note the success of the pilot programs and that, despite 
initial reluctance, the SBA has carried out its mandate well. 
The Committee fully expects that the SBA will continue to 
exhibit a spirit of cooperation and compromise with the CDCs in 
its conduct of the permanent program.
    In response to SBA's plans to implement asset sales, the 
Committee incorporates language in H.R. 2614 requiring the SBA 
to notify CDCs prior to including a 504 loan in an asset sale. 
The committee takes this action in order to ensure there is 
adequate cooperation. The Committee supports the SBA's intent 
to move forward with the asset sales program, but does not wish 
this action to come at the expense of the SBA's partners.

                            Committee Action


                    hearing on legislative proposals

    On June 24, 1999, at 9:30 a.m., the Committee on Small 
Business convened a hearing to discuss legislative proposals 
for the 7(a) and 504 programs. The Committee received testimony 
from four witnesses: Mr. Fred Hockberg, Deputy Administrator of 
the Small Business Administration; Mr. Anthony Wilkinson, 
President of the National Association of Government Guaranteed 
Lenders; Ms. Donna Faulk, Vice President for Mortgage Backed 
Securities of Prudential Securities; and Mr. John Geigel of the 
Wisconsin Development Finance Corporation representing the 
National Association of Development Companies.
    Mr. Geigel's testimony concerned the provisions affecting 
the 504 program. He expressed the Certified Development Company 
industry's strong support of the legislative language which 
became the body of H.R. 2614. In particular, he supported the 
language providing qualified development companies with the 
ability to liquidate defaulted loans with minimal SBA 
oversight. He expressed the 504 industry's belief that the 
lenders, who had intimate knowledge of the loans, were in a 
superior position to either liquidate or restructure loans. In 
addition, he expressed strong support of the provisions 
increasing the maximum loan/debenture size and the inclusion of 
women-owned businesses as a group of eligible under the public 
policy lending provisions of the 504 program.
    Mr. Hochberg's testimony generally supported the provisions 
in the legislative proposal which later became H.R. 2614. He 
expressed the SBA's support for reauthorizing the fees which 
support the 504 program, making the Pilot Liquidation Program 
permanent and making the Premier Certified Lender Program 
permanent as well. Mr. Hochberg expressed the SBA's concerns 
over the language regarding the treatment of 504 loans in the 
SBA's planned asset sales. These concerns were later addressed 
by the Committee and changes were incorporated into H.R. 2614.

                       consideration of h.r. 2614

    At 9:30 a.m. on July 30, 1999, the Committee on Small 
Business met to mark up and report H.R. 2614 and H.R. 2615. 
After consideration of H.R. 2615, Chairman Talent asked 
unanimous consent that H.R. 2614 be considered as read and open 
for amendment at any point. No amendments were offered to H.R. 
2614. The Chairman then moved the bill be reported, and at 
10:35 a.m., by voice vote, a quorum being present, the 
Committee passed H.R. 2614 and ordered it reported.

                      Section-by-Section Analysis


Section 1. Short title

Section 2. Maximum debenture size

    Maximum loan/debenture size is increased from $750,000 to 
$1,000,000 for regular debentures. Public policy loan/
debentures are increased from $1,000,000 to $1,300,000 for 
public policy debentures. This increase is commensurate with 
inflation since the current debenture levels were established.

Section 3. Women-owned businesses

    Women-owned businesses are added to the list of concerns 
eligible for the higher debentures available for the policy 
concerns. Current policy goals include lending to low-income 
and rural areas, and loans to businesses owned by minorities.

Section 4. Fees

    Currently, the 504 program levies fees on the borrower, 
CDC, and the participating bank. The bank pays a one-time fee 
whereas the borrower and CDC pay a percentage of the 
outstanding balance annually in order to provide operational 
funding for the 504 program. Currently these fees sunset on 
October 1, 2000. This legislation would continue the fees 
through October 1, 2003.

Section 5. Premier Certified Lenders Program

    The Preferred Certified Lenders Program is granted 
permanent status. The current demonstration program terminates 
at the end of FY 2000.

Section 6. Sale of certain defaulted loans

    SBA is required to give any certified lender with 
contingent liability 90 days notice prior to including a 
defaulted loan in a bulk sale of loans. No loan may be sold 
without permitting prospective purchasers to examine SBA 
records on the loan.

Section 7. Loan liquidation

    Section 510 is added to the Small Business Investment Act 
of 1958 in order to create a program permitting CDCs to handle 
the liquidation of defaulted loans. This program replaces the 
pilot program authorized by Public Law 105-135, the Small 
Business Reauthorization Act of 1997. A permanent program would 
permit OMB to score savings achieved by the program when 
computing the subsidy rate for the 504 program.
    In order to participate in the liquidation program, a CDC 
must have made at least 10 loans per year for the past three 
years and have at least one employee with 2 years of 
liquidation experience or be a member of the Accredited Lenders 
Program with at least one employee with 2 years of liquidation 
experience. Both groups are required to receive training. PCLP 
participants and current participants in the pilot program 
automatically qualify.
    CDCs have the authority to litigate as necessary to 
foreclose and liquidate, but SBA could assume control of the 
litigation if the outcome might adversely affect SBA's 
management of the program or if SBA has additional legal 
remedies not available to the CDC.
    All Section 510 participants are required to submit a 
liquidation plan to SBA for approval, and SBA has 15 days to 
approve, deny, or express concern with the plan. Further SBA 
approval of routine liquidation activities is not required.
    CDCs are able to purchase indebtedness with SBA approval, 
and SBA is required to respond to such a request within 15 
days. Likewise, CDCs are required to seek SBA approval of any 
workout plan, and SBA must respond to that request within 15 
days. With SBA approval a CDC may compromise indebtedness. Such 
approval must be granted, denied, or explained within 15 days 
of receipt by SBA.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 2, 1999.
Hon. James M. Talent,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2614, the 
Certified Development Company Program Improvements Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark Hadley.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               congressional budget office cost estimate

H.R. 2614--Certified Development Company Program Improvements Act of 
        1999

    H.R. 2614 would make numerous changes to two loan programs 
that the Small Business Administration (SBA) operates in 
cooperation with certified development companies (CDCs). Based 
on information from the SBA, CBO estimates that implementing 
H.R. 2614 would not have a significant impact on the federal 
budget. Because H.R. 2614 could effect direct spending, pay-as-
you-go procedures would apply, but we estimate that any such 
effect would not be significant. H.R. 2614 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act and would impose no costs on 
state, local, or tribal governments.
    CDC loans, also known as section 503 and 504 loans, provide 
small businesses with long-term, fixed-rate financing for the 
purchase of land, buildings, and equipment. Under current law, 
the Administrator of SBA must adjust an annual fee on 504 loans 
to produce an estimated subsidy rate of zero at the time loans 
are guaranteed. H.R. 2614 would extend the authority to collect 
such fees on new loans through fiscal year 2003. Under current 
law, both the program and its fee authority expire at the end 
of fiscal year 2000. If the program is reauthorized, the 
extension of the fee authority would maintain a zero subsidy 
rate. (H.R. 2614 would not, by itself, extend the program 
beyond 2000.) The bill would allow CDCs to litigate in place of 
SBA and would authorize qualified companies to liquidate loans 
in their portfolio that the SBA has purchased. (The bill would 
make permanent the pilot program that allowed CDCs to liquidate 
such loans.) Finally, the bill would increase the maximum 
amount that can be guaranteed from $750,000 to $1 million in 
most cases, and from $1 million to $1.3 million if the loan 
would satisfy specific policy goals.
    If H.R. 2614 is enacted, the subsidy rates for previous 
cohorts of CDC loans or the administrative costs of SBA could 
be affected. (The former would affect direct spending.) 
However, it is unclear whether the average subsidy costs for 
SBA guarantees of existing loans would increase or decrease. 
The pilot program has not produced enough information to date 
to allow CBO to make any determination about the amount the 
government would recover on defaulted loans if those loans are 
liquidated by CDCs instead of by SBA. In addition, it is not 
clear how expenses associated with liquidation would be paid. 
The Federal Credit Reform Act stipulates that administrative 
expenses cannot be paid out of the subsidy for loan programs, 
but expenses to foreclose, maintain, or liquidate an asset can. 
Many of the expenses CDCs would incur would be to foreclose, 
maintain, or liquidate assets. It is not clear whether SBA 
would have the authority to reimburse CDCs for administrative 
expenses, including litigation costs.
    Liquidation activities under the bill might cost less than 
under current law, thus lowering the subsidy costs on existing 
loan guarantees. But if litigation costs became part of the 
subsidy costs, those costs could increase. On balance, CBO 
expects that enacting H.R. 2614 would probably not lead to a 
significant net change in the subsidy cost for CDC loans or in 
SBA's administrative costs.
    The bill would not effect the zero subsidy rate for future 
CDC loans. H.R. 2614 would increase the maximum size of the 
guarantee, which could increase the default risk of the 
program. But added costs for defaults on future loans would be 
offset by fees paid by borrowers.
    The CBO staff contact is Mark Hadley. This estimate was 
approved by Robert A. Sunshine, Deputy Director for Budget 
Analysis.

                      Committee Estimate of Costs

    Pursuant to the Congressional Budget Act of 1974, the 
Committee estimates that the amendments to the Small Business 
Investment Act contained in H.R. 2614 will not increase 
discretionary spending over the next five fiscal years. The 
Committee also estimates that H.R. 2614 will not affect direct 
spending. This estimate concurs with Congressional Budget 
Office (CBO) estimates.
    Furthermore, pursuant to clause 3(d)(2)(A) of rule XIII of 
the Rules of the House of Representatives, the Committee 
estimates that implementation of H.R. 2614 will not 
significantly increase other administrative costs.

                           Oversight Findings

    In accordance with clause 4(c)(2) of rule X of the Rules of 
the House of Representatives, the Committee states that no 
oversight findings or recommendations have been made by the 
Committee on Government Reform with respect to the subject 
matter contained in H.R. 2614.
    In accordance with clause (2)(B)(1) of rule X of the Rules 
of the House of Representatives, the oversight findings and 
recommendations of the Committee on Small Business with respect 
to the subject matter contained in H.R. 2614 are incorporated 
into the descriptive portions of this report.

                 Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Section 8, clause 18, of the 
Constitution of the United States.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                 SMALL BUSINESS INVESTMENT ACT OF 1958

           *       *       *       *       *       *       *



        TITLE V--LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES


                      state development companies

  Sec. 501. (a) * * *

           *       *       *       *       *       *       *

  (d) In order to qualify for assistance under this title, the 
development company must demonstrate that the project to be 
funded is directed toward at least one of the following 
economic development objectives--
          (1) * * *

           *       *       *       *       *       *       *

          (3) the achievement of one or more of the following 
        public policy goals:
                  (A) * * *
                  (C) expansion of minority business 
                development or women-owned business 
                development,

           *       *       *       *       *       *       *


  LOANS FOR PLANT ACQUISITION, CONSTRUCTION, CONVERSION, AND EXPANSION

  Sec. 502. The Administration may, in addition to its 
authority under section 501, make loans for plant acquisition, 
construction, conversion or expansion, including the 
acquisition of land, to State and local development companies, 
and such loans may be made or effected either directly or in 
cooperation with banks or other lending institutions through 
agreements to participate on an immediate or deferred basis: 
Provided, however, That the foregoing powers shall be subject 
to the following restrictions and limitations:
          (1)  * * *
          [(2) Loans made by the Administration under this 
        section shall be limited to $750,000 for each such 
        identifiable small-business concern, except loans 
        meeting the criteria specified in section 501(d)(3) 
        shall be limited to $1,000,000 for each such 
        identifiable small business concern.]
          (2) Loans made by the Administration under this 
        section shall be limited to $1,000,000 for each such 
        identifiable small business concern, except loans 
        meeting the criteria specified in section 501(d)(3), 
        which shall be limited to $1,300,000 for each such 
        identifiable small business concern.

           *       *       *       *       *       *       *


                     DEVELOPMENT COMPANY DEBENTURES

  Sec. 503. (a) * * *

           *       *       *       *       *       *       *

    [(f) Effective Date.--The fees authorized by subsections 
(b) and (c) shall apply to financings approved by the 
Administration on or after October 1, 1996, but shall not apply 
to financings approved by the Administration on or after 
October 1, 2000.]
  (f) Effective Date.--The fees authorized by subsections (b) 
and (d) shall apply to financings approved by the 
Administration on or after October 1, 1996, but shall not apply 
to financings approved by the Administration on or after 
October 1, 2003.

           *       *       *       *       *       *       *


SEC. 508. PREMIER CERTIFIED LENDERS PROGRAM.

  (a) Establishment.--[On a pilot program basis, the] The 
Administration may establish a Premier Certified Lenders 
Program for certified development companies that meet the 
requirements of subsection (b).
  (b) * * *

           *       *       *       *       *       *       *

  (d) Sale of Certain Defaulted Loans.--
          (1) Notice.--If, upon default in repayment, the 
        Administration acquires a loan guaranteed under this 
        section and identifies such loan for inclusion in a 
        bulk asset sale of defaulted or repurchased loans or 
        other financings, it shall give prior notice thereof to 
        any certified development company which has a 
        contingent liability under this section. The notice 
        shall be given to the company as soon as possible after 
        the financing is identified, but not less than 90 days 
        before the date the Administration first makes any 
        records on such financing available for examination by 
        prospective purchasers prior to its offering in a 
        package of loans for bulk sale.
          (2) Limitations.--The Administration shall not offer 
        any loan described in paragraph (1) as part of a bulk 
        sale unless it--
                  (A) provides prospective purchasers with the 
                opportunity to examine the Administration's 
                records with respect to such loan; and
                  (B) provides the notice required by paragraph 
                (1).
  [(d)] (e) Loan Approval Authority.--

           *       *       *       *       *       *       *

  [(e)] (f) Review.--After the issuance and sale of debentures 
under this section, the Administration, at intervals not 
greater than 12 months, shall review the financings made by 
each premier certified lender. The review shall include the 
lender's credit decisions and general compliance with the 
eligibility requirements for each financing approved under the 
program authorized under this section. The Administration shall 
consider the findings of the review in carrying out its 
responsibilities under subsection [(f)] (g), but such review 
shall not affect any outstanding debenture guarantee.
  [(f)] (g) Suspension or Revocation.--The designation of a 
certified development company as a premier certified lender may 
be suspended or revoked if the Administration determines that 
the company--

           *       *       *       *       *       *       *

  [(g)] (h) Effect of Suspension or Revocation.--A suspension 
or revocation under subsection [(f)] (g) shall not affect any 
outstanding debenture guarantee.
  [(h)] (i) Program Goals.--Each certified development company 
participating in the program under this section shall establish 
a goal of processing a minimum of not less than 50 percent of 
the loan applications for assistance under section 504 pursuant 
to the program authorized under this section.
  [(i)] (j) Report.--Not later than 1 year after the date of 
enactment of this Act, and annually thereafter, the 
Administration shall report to the Committees on Small Business 
of the Senate and the House of Representatives on the 
implementation of this section. Each report shall include--

           *       *       *       *       *       *       *


SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.

  (a) Delegation of Authority.--In accordance with this 
section, the Administration shall delegate to any qualified 
State or local development company (as defined in section 
503(e)) that meets the eligibility requirements of subsection 
(b)(1) the authority to foreclose and liquidate, or to 
otherwise treat in accordance with this section, defaulted 
loans in its portfolio that are funded with the proceeds of 
debentures guaranteed by the Administration under section 503.
  (b) Eligibility for Delegation.--
          (1) Requirements.--A qualified State or local 
        development company shall be eligible for a delegation 
        of authority under subsection (a) if--
                  (A) the company--
                          (i) has participated in the loan 
                        liquidation pilot program established 
                        by the Small Business Programs 
                        Improvement Act of 1996 (15 U.S.C. 695 
                        note), as in effect on the day before 
                        promulgation of final regulations by 
                        the Administration implementing this 
                        section;
                          (ii) is participating in the Premier 
                        Certified Lenders Program under section 
                        508; or
                          (iii) during the 3 fiscal years 
                        immediately prior to seeking such a 
                        delegation, has made an average of not 
                        less than 10 loans per year that are 
                        funded with the proceeds of debentures 
                        guaranteed under section 503; and
                  (B) the company--
                          (i) has 1 or more employees--
                                  (I) with not less than 2 
                                years of substantive, decision-
                                making experience in 
                                administering the liquidation 
                                and workout of problem loans 
                                secured in a manner substantially 
                                similar to loans funded with the 
                                proceeds of debentures guaranteed 
                                under section 503; and
                                  (II) who have completed a 
                                training program on loan 
                                liquidation developed by the 
                                Administration in conjunction 
                                with qualified State and local 
                                development companies that meet 
                                the requirements of this 
                                paragraph; or
                          (ii) submits to the Administration 
                        documentation demonstrating that the 
                        company has contracted with a qualified 
                        third-party to perform any liquidation 
                        activities and secures the approval of 
                        the contract by the Administration with 
                        respect to the qualifications of the 
                        contractor and the terms and conditions 
                        of liquidation activities.
          (2) Confirmation.--On request the Administration 
        shall examine the qualifications of any company 
        described in subsection (a) to determine if such 
        company is eligible for the delegation of authority 
        under this section. If the Administration determines 
        that a company is not eligible, the Administration 
        shall provide the company with the reasons for such 
        ineligibility.
  (c) Scope of Delegated Authority.--
          (1) In general.--Each qualified State or local 
        development company to which the Administration 
        delegates authority under section (a) may with respect 
        to any loan described in subsection (a)--
                  (A) perform all liquidation and foreclosure 
                functions, including the purchase in accordance 
                with this subsection of any other indebtedness 
                secured by the property securing the loan, in a 
                reasonable and sound manner according to 
                commercially accepted practices, pursuant to a 
                liquidation plan approved in advance by the 
                Administration under paragraph (2)(A);
                  (B) litigate any matter relating to the 
                performance of the functions described in 
                subparagraph (A), except that the 
                Administration may--
                          (i) defend or bring any claim if--
                                  (I) the outcome of the 
                                litigation may adversely affect 
                                the Administration's management 
                                of the loan program established 
                                under section 502; or
                                  (II) the Administration is 
                                entitled to legal remedies not 
                                available to a qualified State 
                                or local development company 
                                and such remedies will benefit 
                                either the Administration or 
                                the qualified State or local 
                                development company; or
                          (ii) oversee the conduct of any such 
                        litigation; and
                  (C) take other appropriate actions to 
                mitigate loan losses in lieu of total 
                liquidation or foreclosures, including the 
                restructuring of a loan in accordance with 
                prudent loan servicing practices and pursuant 
                to a workout plan approved in advance by the 
                Administration under paragraph (2)(C).
          (2) Administration approval.--
                  (A) Liquidation plan.--
                          (i) In general.--Before carrying out 
                        functions described in paragraph 
                        (1)(A), a qualified State or local 
                        development company shall submit to the 
                        Administration a proposed liquidation 
                        plan.
                          (ii) Administration action on plan.--
                                  (I) Timing.--Not later than 
                                15 business days after a 
                                liquidation plan is received by 
                                the Administration under clause 
                                (i), the Administration shall 
                                approve or reject the plan.
                                  (II) Notice of no decision.--
                                With respect to any plan that 
                                cannot be approved or denied 
                                within the 15-day period 
                                required by subclause (I), the 
                                Administration shall within 
                                such period provide in 
                                accordance with subparagraph 
                                (E) notice to the company that 
                                submitted the plan.
                          (iii) Routine actions.--In carrying 
                        out functions described in paragraph 
                        (1)(A), a qualified State or local 
                        development company may undertake 
                        routine actions not addressed in a 
                        liquidation plan without obtaining 
                        additional approval from the 
                        Administration.
                  (B) Purchase of indebtedness.--
                          (i) In general.--In carrying out 
                        functions described in paragraph 
                        (1)(A), a qualified State or local 
                        development company shall submit to the 
                        Administration a request for written 
                        approval before committing the 
                        Administration to the purchase of any 
                        other indebtedness secured by the 
                        property securing a defaulted loan.
                          (ii) Administration action on 
                        request.--
                                  (I) Timing.--Not later than 
                                15 business days after 
                                receiving a request under 
                                clause (i), the Administration 
                                shall approve or deny the 
                                request.
                                  (II) Notice of no decision.--
                                With respect to any request 
                                that cannot be approved or 
                                denied within the 15-day period 
                                required by subclause (I), the 
                                Administration shall within 
                                such period provide in 
                                accordance with subparagraph 
                                (E) notice to the company that 
                                submitted the request.
                  (C) Workout plan.--
                          (i) In general.--In carrying out 
                        functions described in paragraph 
                        (1)(C), a qualified State or local 
                        development company shall submit to the 
                        Administration a proposed workout plan.
                          (ii) Administration action on plan.--
                                  (I) Timing.--Not later than 
                                15 business days after a 
                                workout plan is received by the 
                                Administration under clause 
                                (i), the Administration shall 
                                approve or reject the plan.
                                  (II) Notice of no decision.--
                                With respect to any workout 
                                plan that cannot be approved or 
                                denied within the 15-day period 
                                required by subclause (I), the 
                                Administration shall within 
                                such period provide in 
                                accordance with subparagraph 
                                (E) notice to the company that 
                                submitted the plan.
                  (D) Compromise of indebtedness.--In carrying 
                out functions described in paragraph (1)(A), a 
                qualified State or local development company 
                may--
                          (i) consider an offer made by an 
                        obligor to compromise the debt for less 
                        than the full amount owing; and
                          (ii) pursuant to such an offer, 
                        release any obligor or other party 
                        contingently liable, if the company 
                        secures the written approval of the 
                        Administration.
                  (E) Contents of notice of no decision.--Any 
                notice provided by the Administration under 
                subparagraphs (A)(ii)(II), (B)(ii)(II), or 
                (C)(ii)(II)--
                          (i) shall be in writing;
                          (ii) shall state the specific reason 
                        for the Administration's inability to 
                        act on a plan or request;
                          (iii) shall include an estimate of 
                        the additional time required by the 
                        Administration to act on the plan or 
                        request; and
                          (iv) if the Administration cannot act 
                        because insufficient information or 
                        documentation was provided by the 
                        company submitting the plan or request, 
                        shall specify the nature of such 
                        additional information or 
                        documentation.
          (3) Conflict of interest.--In carrying out functions 
        described in paragraph (1), a qualified State or local 
        development company shall take no action that would 
        result in an actual or apparent conflict of interest 
        between the company (or any employee of the company) 
        and any third party lender, associate of a third party 
        lender, or any other person participating in a 
        liquidation, foreclosure, or loss mitigation action.
  (d) Suspension or Revocation of Authority.--The 
Administration may revoke or suspend a delegation of authority 
under this section to any qualified State or local development 
company, if the Administration determines that the company--
          (1) does not meet the requirements of subsection 
        (b)(1);
          (2) has violated any applicable rule or regulation of 
        the Administration or any other applicable law; or
          (3) fails to comply with any reporting requirement 
        that may be established by the Administration relating 
        to carrying out of functions described in paragraph 
        (1).
  (e) Report.--
          (1) In general.--Based on information provided by 
        qualified State and local development companies and the 
        Administration, the Administration shall annually 
        submit to the Committees on Small Business of the House 
        of Representatives and of the Senate a report on the 
        results of delegation of authority under this section.
          (2) Contents.--Each report submitted under paragraph 
        (1) shall include the following information:
                  (A) With respect to each loan foreclosed or 
                liquidated by a qualified State or local 
                development company under this section, or for 
                which losses were otherwise mitigated by the 
                company pursuant to a workout plan under this 
                section--
                          (i) the total cost of the project 
                        financed with the loan;
                          (ii) the total original dollar amount 
                        guaranteed by the Administration;
                          (iii) the total dollar amount of the 
                        loan at the time of liquidation, 
                        foreclosure, or mitigation of loss;
                          (iv) the total dollar losses 
                        resulting from the liquidation, 
                        foreclosure, or mitigation of loss; and
                          (v) the total recoveries resulting 
                        from the liquidation, foreclosure, or 
                        mitigation of loss, both as a 
                        percentage of the amount guaranteed and 
                        the total cost of the project financed.
                  (B) With respect to each qualified State or 
                local development company to which authority is 
                delegated under this section, the totals of 
                each of the amounts described in clauses (i) 
                through (v) of subparagraph (A).
                  (C) With respect to all loans subject to 
                foreclosure, liquidation, or mitigation under 
                this section, the totals of each of the amounts 
                described in clauses (i) through (v) of 
                subparagraph (A).
                  (D) A comparison between--
                          (i) the information provided under 
                        subparagraph (C) with respect to the 
                        12-month period preceding the date on 
                        which the report is submitted; and
                          (ii) the same information with 
                        respect to loans foreclosed and 
                        liquidated, or otherwise treated, by 
                        the Administration during the same 
                        period.
                  (E) The number of times that the 
                Administration has failed to approve or reject 
                a liquidation plan in accordance with 
                subparagraph (A)(i), a workout plan in 
                accordance with subparagraph (C)(i), or to 
                approve or deny a request for purchase of 
                indebtedness under subparagraph (B)(i), 
                including specific information regarding the 
                reasons for the Administration's failure and 
                any delays that resulted.

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                              ----------                              


 SECTION 217 OF THE SMALL BUSINESS ADMINISTRATION REAUTHORIZATION AND 
                        AMENDMENTS ACT OF 1994

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[SEC. 217. PREMIER CERTIFIED LENDERS PROGRAM.

  [(a) In General.--Title V of the Small Business Investment 
Act of 1958 (15 U.S.C. 695 et seq.) is amended by adding at the 
end the following new section:

[``SEC. 508. PREMIER CERTIFIED LENDERS PROGRAM.

  [``(a) Establishment.--On a pilot program basis, the 
Administration may establish a Premier Certified Lenders 
Program for not more than 15 certified development companies 
that meet the requirements of subsection (b).
  [``(b) Requirements.--
          [``(1) Application.--To be eligible to participate in 
        the Premier Certified Lenders Program established under 
        subsection (a), a certified development company shall 
        prepare and submit to the Administration an application 
        at such time, in such manner, and containing such 
        information as the Administration may require.
          [``(2) Designation.--The Administration may designate 
        a certified development company as a premier certified 
        lender if such company--
                  [``(A) has been an active participant in the 
                accredited lenders program during the 12-month 
                period preceding the date on which the company 
                submits an application under paragraph (1), 
                except that, prior to January 1, 1996, the 
                Administration may waive this requirement if 
                the company is qualified to participate in the 
                accredited lenders program;
                  [``(B) has a history of submitting to the 
                Administration adequately analyzed debenture 
                guarantee application packages; and
                  [``(C) agrees to assume and to reimburse the 
                Administration for 10 percent of any loss 
                sustained by the Administration as a result of 
                default by the company in the payment of 
                principal or interest on a debenture issued by 
                such company and guaranteed by the 
                Administration under this section.
  [``(c) Loss Reserve.--
          [``(1) Establishment.--A company designated as a 
        premier certified lender shall establish a loss reserve 
        for financings approved pursuant to this section.
          [``(2) Amount.--The amount of the loss reserve shall 
        be based upon the greater of--
                  [``(A) the historic loss rate on debentures 
                issued by such company; or
                  [``(B) 10 percent of the amount of the 
                company's exposure as determined under 
                subsection (b)(2)(C).
          [``(3) Assets.--The loss reserve shall be comprised 
        of segregated assets of the company which shall be 
        securitized in favor of the Administration.
          [``(4) Contributions.--The company shall make 
        contributions to the loss reserve in the following 
        amounts and at the following intervals:
                  [``(A) 50 percent when a debenture is closed.
                  [``(B) 25 percent not later than 1 year after 
                a debenture is closed.
                  [``(C) 25 percent not later than 2 years 
                after a debenture is closed.
  [``(d) Loan Approval Authority.--
          [``(1) In general.--Notwithstanding section 
        503(b)(6), and subject to such terms and conditions as 
        the Administration may establish, the Administration 
        may permit a company designated as a premier certified 
        lender under this section to approve loans that are 
        funded with the proceeds of a debenture issued by such 
        company and may authorize the guarantee of such 
        debenture.
          [``(2) Scope of review.--The approval of a loan by a 
        premier certified lender shall be subject to final 
        approval as to eligibility of any guarantee by the 
        Administration pursuant to section 503(a), but such 
        final approval shall not include review of decisions by 
        the lender involving creditworthiness, loan closing, or 
        compliance with legal requirements imposed by law or 
        regulation.
  [``(e) Review.--After the issuance and sale of debentures 
under this section, the Administration, at intervals not 
greater than 12 months, shall review the financings made by 
each premier certified lender. The review shall include the 
lender's credit decisions and general compliance with the 
eligibility requirements for each financing approved under the 
program authorized under this section. The Administration shall 
consider the findings of the review in carrying out its 
responsibilities under subsection (f), but such review shall 
not affect any outstanding debenture guarantee.
  [``(f) Suspension or Revocation.--The designation of a State 
or local development company as a premier certified lender may 
be suspended or revoked if the Administration determines that 
the company--
          [``(1) has not continued to meet the criteria for 
        eligibility under subsection (b);
          [``(2) has not established or maintained the loss 
        reserve required under subsection (c);
          [``(3) is failing to adhere to the Administration's 
        rules and regulations; or
          [``(4) is violating any other applicable provision of 
        law.
  [``(g) Effect of Suspension or Designation.--A suspension or 
revocation under subsection (f) shall not affect any 
outstanding debenture guarantee.
  [``(h) Regulations.--Not later than 180 days after the date 
of enactment of this section, the Administration shall 
promulgate regulations to carry out this section.
  [``(i) Report.--Not later than 1 year after the date of 
enactment of this Act, and annually thereafter, the 
Administration shall report to the Committees on Small Business 
of the Senate and the House of Representatives on the 
implementation of this section. Each report shall include--
          [``(1) the number of certified development companies 
        designated as premier certified lenders;
          [``(2) the debenture guarantee volume of such 
        companies;
          [``(3) a comparison of the loss rate for premier 
        certified lenders to the loss rate for accredited and 
        other lenders; and
          [``(4) such other information as the Administration 
        deems appropriate.''.
  [(b) Repeal.--Effective on October 1, 1997, section 508 of 
the Small Business Investment Act of 1958, as added by 
subsection (a), is repealed.]

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