[Federal Register Volume 75, Number 245 (Wednesday, December 22, 2010)]
[Notices]
[Pages 80561-80562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32095]


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SMALL BUSINESS ADMINISTRATION


Community Express Pilot Program

AGENCY: U.S. Small Business Administration (SBA).

ACTION: Notice of short-term extension and termination of the Community 
Express Pilot Program.

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SUMMARY: This notice announces the termination of the Community Express 
Pilot Program following a four month extension to April 30, 2011. As of 
May 1, 2011, no new Community Express loan applications will be 
approved. SBA is in the process of replacing this pilot with two new 
lending initiatives aimed at increasing 7(a) lending in underserved 
communities which initiatives are expected to be available by April 30, 
2011.

DATES: The Community Express Pilot Program is extended through April 
30, 2011, at which time the pilot program will terminate.

FOR FURTHER INFORMATION CONTACT: Grady B. Hedgespeth, Office of 
Financial Assistance, U.S. Small Business Administration, 409 Third 
Street, SW., Washington, DC 20416; Telephone (202) 205-6490; 
[email protected].

SUPPLEMENTARY INFORMATION: The Community Express Pilot Program was 
established in 1999 and was based on the Agency's SBA Express Program. 
Lenders approved for participation in Community Express are authorized 
to use the expedited loan processing procedures in place for SBA 
Express for lending to distressed or underserved markets. In addition, 
participating lenders must arrange and, when necessary, pay for 
appropriate management and technical assistance for their Community 
Express borrowers. To encourage lenders to make these loans, SBA 
provides its full 75-85 percent guaranty, rather than the 50 percent 
guaranty the Agency provides under SBA Express. The maximum loan amount 
under this pilot program is $250,000.
    On June 30, 2008, SBA published a notice in the Federal Register to 
extend the Community Express Pilot Program through September 30, 2008, 
and to notify the public of SBA's plan to significantly restructure the 
pilot program effective October 1, 2008. The notice also indicated that 
the restructured pilot program would be extended through December 31, 
2009 (73 FR 36950). On January 5, 2010, SBA announced that to allow 
time to better evaluate the results of the program changes implemented 
in October 2008,

[[Page 80562]]

the pilot program was extended again through December 31, 2010 (75 FR 
473).
    SBA has completed its evaluation of Community Express and has 
determined that the pilot program is not achieving the expected results 
at a reasonable cost to the taxpayers. When measured against broad 
program goals, Community Express has had mixed outcomes. The Community 
Express product has resulted in loans to new businesses, minority 
businesses and other underserved sectors; however, it has consistently 
ranked as SBA's highest loss product, even when controlling for loan 
size, and it has never had widespread acceptance by SBA lenders or good 
geographical dispersion.
    Throughout its history, Community Express has had significantly 
higher default rates (almost 40% of loans defaulted in certain cohorts) 
compared with other similarly sized 7(a) loans, which also resulted in 
higher net losses because most Community Express loans are unsecured. 
In addition, the difficulty of coordinating and ensuring efficient 
access to quality management and technical assistance to borrowers 
resulted in large lenders abandoning the product a few years after its 
creation. Many commercial lenders may not have been willing or able to 
efficiently meet SBA's technical assistance delivery and reporting 
requirements because the provision and reporting of management and 
technical assistance is not normally part of their lending model. 
Eventually, less than 5% of SBA's active lenders were using the product 
and most of the activity was concentrated in a handful of lenders 
(three lenders comprised approximately 85% of the Community Express 
loan volume in recent years, one of which has been taken over by the 
FDIC and is no longer in operation).
    SBA's Office of Inspector General (OIG) conducted a thorough review 
of the Community Express Pilot Program over the span of 14 months 
resulting in an audit report issued on August 25, 2010. The OIG 
identified significant issues with the pilot program, including the 
following: (1) Community Express has not been as effective as other 
7(a) loan programs in increasing loans to underserved markets; (2) 
Community Express has a high cost, which is expected to significantly 
increase the overall 7(a) program subsidy rate; and (3) the credit 
scoring practices of the two most active Community Express Lenders have 
increased program risk. Based on the issues identified above, the 
central recommendation of the OIG report was that SBA not extend the 
Community Express Pilot Loan Program in its current form.
    For the reasons discussed above, SBA is proposing to replace 
Community Express with two new 7(a) lending initiatives designed to 
reach underserved markets more efficiently and effectively and at a 
lower cost to the taxpayer. Extending Community Express four months 
will permit SBA time to roll out the new pilot program.

    Authority: 15 U.S.C. 636(a)(25); 13 CFR 120.3.

    Dated: December 16, 2010.
Karen G. Mills,
Administrator.
[FR Doc. 2010-32095 Filed 12-21-10; 8:45 am]
BILLING CODE 8025-01-P