SBA Lender Risk Rating System Notice and Request for Comments, 25624-25628 [E6-6506]
Download as PDF
<![CDATA[
25624
Federal Register / Vol. 71, No. 83 / Monday, May 1, 2006 / Notices
an exemption under Section 312 of the
Act and Section 107.730, Financings
which Constitute Conflicts of Interest of
the Small Business Administration
(‘‘SBA’’) Rules and Regulations (13 CFR
107.730). Horizon Ventures Fund II, L.P.
proposes to provide equity/debt security
financing to Invivodata, Inc. 2100
Wharton Street, Suite 505, Pittsburgh,
Pennsylvania 15203. The financing is
contemplated for working capital and
general corporate purposes.
The financing is brought within the
purview of § 107.730(a)(1) of the
Regulations because Horizons Ventures
Fund I, L.P. and Horizons Ventures
Advisors Fund I, L.P., all Associates of
Horizon Ventures Fund II, L.P., own
more than ten percent of Invivodata,
Inc., and therefore Invivodata is
considered an Associate of Horizon
Ventures Fund II as detailed in § 107.50
of the Regulations.
Notice is hereby given that any
interested person may submit written
comments on the transaction to the
Associate Administrator for Investment,
U.S. Small Business Administration,
409 Third Street, SW., Washington, DC
20416.
April 3, 2006.
´
Jaime Guzman-Fournier,
Associate Administrator for Investment.
[FR Doc. E6–6489 Filed 4–28–06; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
cchase on PROD1PC60 with NOTICES
SBA Lender Risk Rating System Notice
and Request for Comments
SUMMARY: SBA is proposing for
comment a lender risk rating system.
The lender risk rating system is an
internal tool to assist SBA in assessing
the risk of each active 7(a) Lender and
Certified Development Company’s
(‘‘SBA Lender’’) SBA loan operations,
and loan portfolio, on a uniform basis
and for identifying those institutions
whose SBA loan operations and
portfolio require additional SBA
monitoring or other action. It is also a
vehicle for assessing the aggregate
strength of SBA’s 7(a) and 504
portfolios. Under the lender risk rating
system, SBA would assign each Lender
a composite rating based on certain
portfolio performance factors, which
may be overridden in some cases due to
Lender specific factors that may be
indicative of a higher or lower level of
risk. SBA Lenders would have access to
their own ratings through SBA’s Lender
Portal.
VerDate Aug<31>2005
17:38 Apr 28, 2006
Jkt 208001
SBA must receive comments on
or before June 15, 2006.
ADDRESSES: You may submit comments
by any of the following methods (1) Email proposedriskrating@sba.gov; (2)
Fax: (202) 205–6831; (3) Mail: John M.
White, Deputy Associate Administrator,
Office of Lender Oversight, U.S. Small
Business Administration, 409 Third
Street, SW., Washington, DC 20416; (4)
Hand Delivery/Courier: 409 Third
Street, SW., Washington, DC 20416, c/
o John M. White.
FOR FURTHER INFORMATION CONTACT: John
M. White, Deputy Associate
Administrator, Office of Lender
Oversight, U.S. Small Business
Administration, 409 Third Street, SW.,
Washington, DC 20416, (202) 205–3049.
SUPPLEMENTARY INFORMATION:
DATES:
Background
SBA is developing an internal risk
rating system for assessing an SBA
Lender’s 7(a) or 504 loan portfolio (i.e.,
loan portfolio performance). The risk
rating system will be an internal tool
that will assist SBA in assessing the risk
of a Lender’s 7(a) and 504 loan
performance on a uniform basis and
identify those Lenders whose portfolio
performance demonstrates the need for
additional SBA monitoring or other
action. It is not intended to be a Lender
grading system. The lender risk rating
system will also serve as a vehicle to
measure the aggregate strength of SBA’s
overall 7(a) and 504 loan portfolios and
to assist SBA in managing the related
risk. SBA will use Lender risk ratings to
make more effective use of its on-site
and off-site lender review and
assessments resources. The proposed
risk rating methodology is set forth
below. SBA is soliciting comments on
the risk rating methodology. During the
comment period, SBA will provide
Lenders access to their own preliminary
risk ratings through SBA’s Lender
Portal. A more detailed discussion of
the risk rating proposal and portal
access follows.
Risk Rating Proposal
Overview
Under SBA’s proposed risk rating
system, SBA would assign all Lenders a
composite rating. The composite rating
would reflect SBA’s assessment of the
potential risk to the government of that
Lender’s SBA portfolio performance.
For 7(a) Lenders, SBA would base the
composite rating on four common
components or factors. The common
factors for 7(a) Lenders would be as
follows: (i) 12 month actual purchase
rate; (ii) problem loan rate; (iii) three
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
month change in the small business
predictive score (SBPS), which is a
small business credit score on loans in
the 7(a) Lender’s portfolio; and (iv)
projected purchase rate derived from the
SBPS.
For CDCs, SBA would base the
composite rating on three common
components or factors. The common
factors for CDCs would be as follows: (i)
12 month actual purchase rate; (ii)
problem loan rate; and (iii) average
SBPS on loans in the 504 Lender’s
portfolio. The third factor replaces the
third and fourth factors used for 7(a)
Lenders because it was found, during
the testing process, to be more
predictive of SBA purchases for 504
Lenders.
In general, these factors reflect both
historical lender performance and
projected future performance. The
factors are derived through formulas
developed using regression analysis
validated and tested by industry
experts. SBA would perform quarterly
calculations on the common factors for
each Lender, so that Lenders’ composite
risk ratings would be updated on a
quarterly basis. Each of the factors is
described in more detail in the Rating
Components section below.
The composite risk rating is a measure
of how each Lender’s loan performance
compares to the loan performance of its
peers. Thus, an individual Lender’s
overall loan performance (using all
common factors) would be compared to
its peers to derive that Lender’s
composite risk rating. Lenders whose
overall portfolio performance (using all
of the common factors) is worse than
their peers will receive a worse, or
higher score, while Lenders whose
overall portfolio performance is better
than their peers will receive a better, or
lower, score.
SBA recognizes that it may be
inequitable to compare all Lenders in a
risk rating system, without separating
them into peer groups, because changes
in loan performance would have
dramatically different impacts on the
portfolio performance of Lenders of
different sizes. For example, the
purchase of one loan from a Lender
would have a much higher impact on
the actual purchase rate component of a
Lender with a small portfolio than it
would on the actual purchase rate of a
Lender with a large portfolio. Therefore,
SBA has established peer groups to
minimize the differences that could
result from changes in loan performance
for portfolios of different sizes. The peer
groups are as follows (based on
outstanding SBA guaranteed dollars):
E:\FR\FM\01MYN1.SGM
01MYN1
Federal Register / Vol. 71, No. 83 / Monday, May 1, 2006 / Notices
7(a) Lender Peer Groups
CDC Peer Groups
$100,000,000 or more ..............................................................................
$10,000,000–$99,999,999 ........................................................................
$4,000,000–$9,999,999 ............................................................................
$1,000,000–$3,999,999 ............................................................................
$0–$999,999 (lenders disbursed at least one loan in past 12 months) ...
$0–$999,999 (lenders did not disburse at least one loan in past 12
months).
cchase on PROD1PC60 with NOTICES
As noted above, the common
components would be used to derive a
composite risk rating for each 7(a) and
504 Lender. Under the proposal, no
single component factor would
normally decide the Lender’s composite
rating. However, depending upon the
size of the peer group, and the variation
between a Lender’s performance and
that of its peers, a single factor could
carry a disproportionate weight among
the three or four components.
Composite Rating
SBA would assign a composite rating
of 1 to 5 to each Lender based upon
their portfolio performance. A rating of
1 would indicate strong portfolio
performance, least risk, and the least
degree of SBA management oversight is
needed (relative to other Lenders in
their peer group), while a 5 rating would
indicate weak portfolio performance,
highest risk, and therefore, the highest
degree of SBA management oversight.
SBA proposes the following definitions
for the composite ratings.
Composite 1—The SBA operations of
a Lender rated 1 would be considered
strong in every respect, and would
likely score much better than SBA
averages in all or nearly all of the rating
components described in this notice. A
Lender rated 1 would have relatively
stable component factors and overall
composite rating from one quarter to the
next. Since the component factors
measure previous performance, and also
attempt to predict future performance, a
Lender rated 1 would be more likely to
have well below average historical
purchase rates, as well as well below
average current problem loan rates that
would predict lower than average future
purchase rates. Overall, loans in the
portfolio of a Lender rated 1 would
demonstrate highly acceptable credit
quality and/or credit trends as measured
by credit scores and portfolio
performance. A Lender rated 1 would
typically also have a well managed SBA
loan program as demonstrated through
on-site or off-site reviews and
assessments (of mid-size and larger
Lenders). Based on the strengths
outlined in this composite rating,
Lenders rated a 1 would present SBA
with the least amount of risk, and would
VerDate Aug<31>2005
17:38 Apr 28, 2006
Jkt 208001
25625
$100,000,000 or more.
$30,000,000–$99,999,999.
$10,000,000–$29,999,999.
$5,000,000–$9,999,999.
Less than $5,000,000.
thus be subject to the lowest level of
SBA oversight compared to other
Lenders in the same peer group.
Composite 2—The SBA operations of
a Lender rated 2 would be considered
good, and would likely be above average
in all or nearly all of the rating
components described in this notice. A
Lender rated a 2 would have component
factors and a composite rating that
would typically be relatively stable from
one quarter to the next. A Lender rated
2 would be more likely to have below
average previous (historical) purchase
rates, as well as below average current
problem loan rates that would predict
lower than average future purchase
rates. Generally, loans in the portfolio of
a Lender rated 2 would demonstrate
better-than-acceptable credit quality
and/or credit trends as measured by
credit scores and portfolio performance.
A Lender rated 2 would likely have a
generally well managed (i.e., a few
minor exceptions or findings) SBA loan
program as demonstrated through onsite or off-site reviews and assessments
(of mid-size and large Lenders). Based
on the strengths outlined in this
composite rating. Lenders rated a 2
would present SBA with a lower level
of risk, and would thus be subject to a
lower level of SBA oversight compared
to other Lenders in the same peer
groups.
Composite 3—The SBA operations of
a Lender rated 3 would be considered
about average in all or nearly all of the
rating components described in this
notice. A Lender rated a 3 would have,
on average, component factors and an
overall composite rating that would
generally be relatively stable from one
quarter to the next. A Lender rated 3
would likely have average previous
(historical) purchase rates (as compared
to their peers), as well as average
current problem loans rates that would
predict future purchase rates in line
with SBA portfolio averages. Generally,
loans in the portfolio of a Lender rated
3 would demonstrate acceptable credit
quality and/or credit trends as measured
by credit scores and portfolio
performance. A Lender rated 3 would
have an adequate (i.e., some minor
exceptions or findings, but few if any
major exceptions or findings, which can
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
be corrected in the normal course of
business) SBA loan program as
demonstrated through on-site or off-site
reviews and assessments (of mid-size
and large Lenders). However, Lenders
rated a 3 would have room for
improvement, should monitor their
portfolio closely, and consider methods
to improve loan performance. Based on
the strengths and weaknesses outlined
in this composite rating, Lenders rated
a 3 would present SBA with an
acceptable level of risk, and would thus
be subject to standard SBA oversight
compared to other Lenders in the same
peer group. Oversight may include
requests for corrective action plans.
Composite 4—The SBA operations of
Lender rated 4 would be considered
below average in all or nearly all of the
rating components described in this
notice. A Lender rated a 4 may have
several changes in any of its
components factor rates; the component
factors and overall composite rating may
demonstrate instability or negative
performance from one quarter to the
next. A Lender rated 4 would be likely
have above average previous (historical)
purchase rates (as compared to their
peers), as well as above average current
problem loan rates that would predict
future purchase rates above SBA
portfolio averages. Generally, loans in
the portfolio of a Lender rated 4 would
demonstrate somewhat less-thanacceptable credit quality and/or credit
trends as measured by credit scores and
portfolio performance. A lender rated 4
would likely have a poorly managed
(i.e., both minor exceptions or findings,
and major exceptions or findings) SBA
loan program as demonstrated through
on-site or off-site reviews and
assessments (of mid-size and large
Lenders). Based on the weaknesses
outlined in this composite rating,
Lenders rated a 4 would present SBA
with a less-than-acceptable level of risk,
and would thus be subject to greater
than normal SBA oversight compared to
other Lenders in the same peer group.
Oversight measures could include (but
are not limited to) additional reviews or
assessments, requests for corrective
action plans, and/or removal from
delegated loan programs, depending
E:\FR\FM\01MYN1.SGM
01MYN1
cchase on PROD1PC60 with NOTICES
25626
Federal Register / Vol. 71, No. 83 / Monday, May 1, 2006 / Notices
upon the level of activity and peer
group.
Composite 5—The SBA operations of
a Lender rated 5 would be considered
well below average in all or nearly all
of the rating components described in
this notice. A Lender rated a 5 is most
likely to have changes in any of its
component factor rates, and have the
greatest likelihood to have their
component factors and overall
composite rating demonstrate instability
or negative performance from one
quarter to the next. A Lender rated 5
would be probably have well above
average previous (historical) purchase
rates, as well as well above average
current problem loan rates that would
predict future purchase rates above SBA
portfolio averages. Generally, loans in
the portfolio of a Lender rated 5 would
demonstrate less-than-acceptable credit
quality and/or credit trends as measured
by credit scores and portfolio
performance. A Lender rated 5 would
likely have a record of significant SBA
program compliance issues as
demonstrated through on-site or off-site
reviews and assessments (of mid-size
and large Lenders). Based on the
substantial weaknesses outlined in this
composite rating, Lenders rated a 5
would present SBA with the highest
level of risk, and would thus be subject
to extensive SBA oversight compared to
other Lenders in the same peer group.
Oversight measures could include (but
are not limited to) additional reviews or
assessments, requests for corrective
action plans, and and/or removal from
delegated loan programs, depending
upon the level of activity and peer
group.
The descriptions within each
Composite rating are not meant as
definitions of the ratings, but are given
to provide, in general, the
characteristics a Lender receiving a
particular rating may exhibit.
Consequently, a Lender assigned a
particular composite rating may not
exhibit every characteristic described
for that rating, nor would SBA’s action
be limited to those stated in the
descriptions.
In some cases, SBA may have reason
to believe that a Lender’s calculated
composite rating may not fully reflect
the level of risk that individual Lender
presents. In those cases, SBA may
override the composite risk rating
(either positively or negatively) and
assign a different composite score.
Should a decision be made to override
the composite score, SBA will provide
the Lender with an explanation of the
reason(s) for the override. More
information on overrides of composite
VerDate Aug<31>2005
17:38 Apr 28, 2006
Jkt 208001
ratings is provided in the overriding
factors section of this notice.
SBA’s proposal to base composite
ratings on a numeric scale is similar to
rating systems used by bank regulators
and other federal loan guarantors. For
example, SBA’s composite rating of 1 is
similar to that of a bank regulator in that
it is indicative of an institution with
strong performance and requiring little
management oversight. SBA’s rating
system is similar to those of other
federal loan guarantors because it
measures risk and portfolio performance
of loan portfolios guaranteed by SBA,
rather than measuring the quality of the
entire institution.
Rating Components
The 4 Common Components for 7(a)
Lenders:
SBA’s proposed quantitative risk
rating system for 7(a) Lenders features
four common component factors. The
four common rating components are
defined below.
(i) Past 12 Month Actual Purchase
Rate—The Past 12 Month Actual
Purchase Rate is an historical measure
of SBA purchases from the Lender in
the preceding 12 months. Thus, this
component provides a measure of
Lender performance and risk as
indicated by actual SBA purchases. SBA
calculates this ratio by dividing the sum
of total gross dollars of the Lender’s
loans purchased during the past 12
months (numerator) by the sum of total
gross outstanding dollars of their SBA
loans outstanding at the end of the 12month period, plus gross dollars
purchased during the past 12 months
(denominator).
(ii) Problem Loan Rate—The Problem
Loan Rate provides an indication of
current Lender risk. This problem loan
indicator helps measure Lender
performance and risk by showing
current delinquencies and liquidations,
as well as predicting potential future
purchases by SBA. SBA calculates the
problem loan rate by dividing total gross
outstanding dollars of a Lender’s loans
that are 90 days or more delinquent plus
gross dollars in liquidation, excluding
purchases of active loans, (numerator)
by the total gross dollars outstanding
(denominator).
(iii) 3 Month Change in Small
Business Predictive Scores (SBPS)—The
SBPS is a portfolio management (not
origination) credit score based upon a
borrower’s business credit report and
principal’s consumer credit report.
SBPS is a proprietary calculation
provided by Dunn & Bradstreet, under
contract with SBA, and is compatible
with Fair, Isaac & Co.’s ‘‘Liquid Credit’’
origination score. This component
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
signals increasing or declining purchase
risk by measuring changes in borrower
credit trends, and acts as a predictor of
possible future loan delinquencies,
liquidations, and SBA purchases. The 3
month change in SBPS is calculated by
measuring the percentage change, on a
dollar-weighted average basis, of the
SBPS on all outstanding SBA loans held
by the lender, from the previous quarter
to the current quarter.
(iv) Projected Purchase Rate—The
Projected Purchase Rate is a predictive
measure of the probability of the
amount of SBA guaranteed dollars in a
Lender’s portfolio that are likely to be
purchased by SBA. This factor uses
credit bureau data on a Lender’s
individual SBA loans to project the
purchase rate of a Lender’s SBA
portfolio. It is a 12-month projection of
future performance based on the most
current credit data on a borrower’s
payment history. For each of a Lender’s
SBA loans outstanding, SBA multiplies
the amount of guaranteed loan dollars
outstanding by the probability of its
purchase (as determined by the SBPS of
the individual loan) and totals the sum
of each individual loan outstanding.
This total (numerator) is then divided
by the Lender’s total SBA-guaranteed
dollars outstanding (denominator).
The 3 Common Components for
CDCs:
SBA’s proposed quantitative risk
rating system for 504 Lenders features
three common component factors. The
three common rating components are
defined below.
(i) Past 12 Month Actual Purchase
Rate—The Past 12 Month Actual
Purchase Rate is an historical measure
of SBA purchases from the CDC in the
preceding 12 months. Thus, this
component provides a measure of CDC
performance and risk as indicated by
actual SBA purchases. SBA calculates
this ratio by dividing the sum of total
SBA gross dollars of the CDC’s loans
purchased during the past 12 months
(numerator) by the sum of total SBA
gross dollars of their SBA loans
outstanding at the end of the 12-month
period, plus total SBA gross dollars
purchased during the past 12 months
(denominator).
(ii) Problem Loan Rate—The Problem
Loan Rate provides an indication of
current CDC risk. This problem loan
indicator helps measure CDC
performance and risk by showing
current delinquencies and liquidations,
as well as predicting potential future
purchases by SBA. SBA calculates the
problem loan rate by dividing the total
SBA gross dollars of a CDC’s loans that
are 90 days or more delinquent plus
total SBA gross dollars of a CDC’s loans
E:\FR\FM\01MYN1.SGM
01MYN1
Federal Register / Vol. 71, No. 83 / Monday, May 1, 2006 / Notices
cchase on PROD1PC60 with NOTICES
in liquidation (numerator), by the total
SBA gross dollars outstanding
(denominator).
(iii) Average Small Business
Predictive Scores (SBPS)—The SBPS is
a portfolio management (not origination)
credit score based upon a borrower’s
business credit report and principal’s
consumer credit report. SBPS is a
proprietary calculation provided by
Dunn & Bradstreet, under contract with
SBA, and is compatible with Fair, Isaac
& Co.’s ‘‘Liquid Credit’’ origination
score. This component provides an
indication of the relative credit quality
of the loans in a CDC’s SBA portfolio.
The score is calculated from the average
SBPS score of the loans in a CDC’s
portfolio, weighted by each loan’s
guaranteed loan dollars outstanding.
Each of the common components
described above would reflect a
different means of measuring a Lender’s
risk to SBA in terms of loan purchase
data. Loan purchase metrics provide a
core gauge of SBA lending success and
program risk. SBA believes a risk rating
system emphasizing purchase indicators
would be a good measure of SBA
lending risk because purchases are a
strong indicator of the cost to SBA, and
predictive of final charge offs and loan
recoveries. In addition, loan purchases
are resource intensive and an
administrative expense to SBA that
reduces SBA’s ability to provide
assistance to small businesses. Finally,
SBA is a ‘‘gap’’ lender, and purchases
are a prime indicator of the failure of the
financing to assist in the growth and
development of small businesses.
Overriding Factors
In addition to the common
components calculated through the use
of loan performance factors, the
proposed risk rating system allows for
consideration of additional factors. The
occurrence of these factors may lead
SBA to conclude that an individual
lender’s composite rating is not fully
reflective of its true risk. Therefore, the
proposed risk rating system would
provide for the consideration of
overriding factors, which may only
apply to a particular Lender or group of
Lenders, and permit SBA to adjust a
Lender’s overall composite rating. The
allowance of overriding factors in
helping determine a Lender’s risk rating
would enable SBA to use key risk
factors that are not necessarily
applicable to all Lenders, but indicate a
greater or lower level of risk from a
particular Lender than that which the
calculated score provides.
One of the most important overriding
factors would be a Lender’s on-site riskbased reviews/assessments usually
VerDate Aug<31>2005
17:38 Apr 28, 2006
Jkt 208001
performed on SBA’s relatively large
Lenders, or that may (under
extraordinary circumstances) be
performed on other Lenders whose
performance demonstrates a highly
unusual deviation from their peer
group. SBA conducts on-site reviews of
large Lenders, performs safety and
soundness reviews of SBA Supervised
Lenders, and uses certain off-site
evaluation measures for less active
Lenders. Consequently, these
assessments, as a factor, may only be
available for a fraction of SBA’s
approximately 5200 Lenders. Examples
of other overriding factors that may be
considered are: Early loan default
trends; purchase rate or projected
purchase rate trends; abnormally high
default, purchase or liquidation rates;
denial of liability occurrences; lending
concentrations; rapid growth of SBA
lending; inadequate, incomplete, or
untimely reporting to SBA or inaccurate
submission of required fees to SBA; and
enforcement actions of regulators or
other authority. This list is not all
inclusive; however, SBA does not
expect any of the overriding factors to
affect a significant number of composite
scores.
Request for Comments
SBA is undertaking a deliberative
development of the Lender risk rating
system. The proposed risk rating system
utilizes predictive modeling and
behavioral scoring systems developed
by private sector industry leaders in
credit risk analysis. SBA has and will
continue to perform annual validation
testing on the risk rating system, and
will further refine the system as
necessary to improve the predictability
of its risk scoring. SBA is requesting
comments from the public on all aspects
of the proposed risk rating system.
To facilitate written comments on the
proposed risk rating system, SBA will
provide Lenders access to their own
preliminary risk ratings, as well as
average peer and portfolio performance
information. SBA will provide Lenders
access to this information through the
use of the Lender Portal developed for
SBA’s Loan and Lender Monitoring
System (L/LMS). Once the risk rating
system is finalized, Lenders will have
access to their final quarterly ratings
through the portal. Additional guidance
on portal access follows.
Lender Portal
Overview
SBA intends to communicate Lender
performance to Lenders through the use
of SBA’s Lender Portal. The portal will
allow Lenders to view their own
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
25627
quarterly performance data, including
their most current composite risk rating.
Lenders can also access data on peer
group and portfolio averages.
Consequently, a Lender will be able to
gauge its performance relative to its peer
group and the portfolio norm. While
Lenders can view their ratings, their
performance indicators, and peer and
portfolio averages, they will not be able
to view the individual ratings and
performance indicators of other
Lenders. The quarterly performance
data will be overwritten on a quarterly
basis; therefore, SBA recommends that
Lenders save their performance data for
their own tracking and trend analysis
purposes.
Portal Data
SBA plans to update portal data
quarterly approximately six to eight
weeks after a calendar quarter ends.
Lenders will only be able to access the
most recent quarterly data. Lenders will
not be able to access previous quarters’
data following an update.
Correcting Portal Data
Portal data includes both summary
performance and credit quality data.
Because summary performance data is
largely derived from data that Lenders
provide to SBA through 1502 and 172
Reports, Lenders bear much of the
responsibility for ensuring data
accuracy. If a Lender reviews its
performance components and they do
not comport with its own data records,
the Lender should confirm the accuracy
of the underlying data. If the Lender
determines that the data is inaccurate, it
should seek to amend any incorrect data
through SBA’s normal processing
channels (for example—for loan
performance data, Lender should
contact SBA’s fiscal and transfer agent).
Credit quality data used to help
establish certain component scores is
derived from credit bureau reports of
the borrower business and its
principals/guarantors. To the extent that
credit quality data relies on information
that a Lender provides on the business,
its principals, and guarantors contained
in the loan application and as required
to be updated by the Lender, the Lender
must take responsibility for ensuring
this information is correct, complete,
and updated. SBA recognizes that
underlying borrower credit data cannot
be changed by SBA or a Lender.
Therefore, any changes to data provided
to credit bureaus must be reported
directly to Dunn & Bradstreet or Trans
Union, as appropriate, by the borrower.
All corrections to portal data (both
summary performance and credit
quality data) will be reflected in the
E:\FR\FM\01MYN1.SGM
01MYN1
25628
Federal Register / Vol. 71, No. 83 / Monday, May 1, 2006 / Notices
quarterly update following the quarter
in which the correction is entered.
Portal Access
cchase on PROD1PC60 with NOTICES
Lenders with at least one outstanding
SBA loan will be able to apply for portal
access. SBA will issue only one portal
user account per Lender. Lenders must
submit initial requests for a portal user
account (or requests to switch or
terminate a user) by regular or overnight
mail to SBA at the following address:
Office of Lender Oversight—Capital
Access, Suite 8200; Mail Code 7011,
ATTN: Lender Portal, U.S. Small
Business Administration, 409 Third
Street, SW., Washington, DC 20416.
Lenders must take the following steps
in requesting portal access:
(1) Request must be made by a senior
officer of the Lender (Senior VP or
above).
(2) Request must be sent via regular or
overnight mail to the address provided
above.
(3) Request must be made using the
Lender’s stationery.
(4) Request must include the user’s
business card.
(4) The stationery and business card
should include the Lender’s name and
address.
(5) The request should include the
following data:
(a) SBA FIRS ID Number(s).
(b) Account user’s name.
(c) Account user’s title.
(d) Account user’s mailing address at
the Lender.
(e) Account user’s telephone number
at the Lender.
(f) Account user’s e-mail address at
the Lender.
(g) Requesting officer’s name.
(h) Requesting officer’s title.
(i) Requesting officer’s mailing
address at the Lender.
(j) Requesting officer’s telephone
number at the Lender.
(k) Requesting officer’s e-mail address
at the Lender.
Once SBA receives and approves the
user request, the Agency will forward
the approval to SBA’s portal contractor
for issuance of a user account name and
password. The portal contractor will email the user his or her user name and
password within approximately two
weeks of account approval. The user can
then access its data by logging into the
Lender portal Web page at https://
pdp.dnb.com/pdpsba/pdplogin.asp.
Lender Portal Responsibilities
Lenders are responsible for complying
with SBA’s requirements in obtaining
and maintaining the portal user
accounts and passwords as set forth
below and as published from time to
VerDate Aug<31>2005
17:38 Apr 28, 2006
Jkt 208001
time. Lenders are also responsible for
timely informing SBA to terminate or
switch an account if the person to
whom it was issued no longer holds that
responsibility for the Lender. Upon
accessing the lender portal, Lenders
must take full responsibility for
protecting the confidentiality of the user
password and lender risk rating
information and for ensuring the
security of the data.
Confidentiality Agreement
By clicking on the Portal log-in button
to access the SBA Lender Information
Portal (‘‘Portal’’), Lender will agree to
use the Confidential Information
(defined in the Portal) contained in the
Portal only for confidential use within
its own immediate corporate
organization, and to hold and maintain
the Confidential Information in
confidence in accordance with the terms
of the Agreement. Lender will agree to
restrict access to the Confidential
Information to those of its officers and
employees who have a legitimate need
to know such information for the
purpose of assisting the Lender in
improving the Lender’s 7(a) or 504
program operations in conjunction with
SBA’s Lender Oversight Program and
SBA’s portfolio management (each
referred to as a ‘‘permitted party’’), and
to those for whom SBA has approved
access by prior written consent and for
whom access is required by applicable
law or legal process. If such law or
process requires Lender to disclose the
Confidential Information to any person
other than a permitted party, Lender
will agree to promptly notify SBA and
SBA’s Information Provider (defined
below) in writing so that SBA and the
Information Provider have, within their
sole discretion, the opportunity to seek
appropriate relief such as an injunction
or protective order prior to Lender’s
disclosure. In addition, Lender will
agree to ensure that each permitted
party is aware of the requirements of the
Agreement and to ensure that each such
permitted party agrees to the terms and
conditions. Lender will agree not to
disclose, and will agree to protect from
disclosure, Lender’s password to enter
the Portal. Further, any disclosure of
Confidential Information other than as
permitted by the Agreement may result
in appropriate action as authorized by
law. Lender also will agree to indemnify
and hold harmless each of SBA and any
provider of the Confidential Information
from and against any and all claims,
demands, suits, actions, and liabilities
to any degree based upon or resulting
from the unauthorized use or disclosure
of the Confidential Information.
‘‘Information Provider’’ means Dun &
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
Bradstreet. (Mail Provider Information
notice to Dun & Bradstreet, Legal
Department, 103 JFK Parkway, Short
Hills, NJ 07078.)
No information contained in the
Portal shall be relied upon for any
purpose other than SBA’s lender
oversight and SBA’s portfolio
management purposes. In addition,
Lender will acknowledge and agree that
the Confidentiality Agreement is for the
benefit not only of the SBA but also of
any party providing the Confidential
Information. Any such party shall have
the right and standing to pursue all legal
and equitable remedies against the
Lender in the event of unauthorized use
or disclosure.
Portal Inquiries
For general inquiries, a Lender may
submit its e-mail to
lender.portal@sba.gov. If a Lender needs
to speak to an individual on a nontechnical matter, it may contact Paul
Bishop at 202–205–7516. SBA advises a
Lender to state upfront its Lender name,
address, FIRS number, and user name to
expedite processing of all inquiries.
Dated: April 26, 2006.
Michael W. Hager,
Associate Deputy Administrator, Office of
Capital Access.
[FR Doc. E6–6506 Filed 4–28–06; 8:45 am]
BILLING CODE 8025–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
Notice of Intent To Prepare an
Environmental Impact Statement; Port
Columbus International Airport,
Columbus, OH
Federal Aviation
Administration, Department of
Transportation
ACTION: Notice of Intent; notice of
scoping meetings.
AGENCY:
SUMMARY: The Federal Aviation
Administration (FAA) is issuing this
Notice of Intent to announce publicly
that an Environmental Impact Statement
(EIS) will be prepared and considered
for the proposed construction of a
replacement runway, proposed terminal
development, ancillary development,
and air traffic procedures developed in
the Part 150 Study for the replacement
runway. Associated improvements
involved with the proposed project are
described below.
FOR FURTHER INFORMATION CONTACT: Ms.
Katherine S. Jones, Federal Aviation
Administration, Detroit Airports District
Office, 11677 South Wayne Road, Suite
E:\FR\FM\01MYN1.SGM
01MYN1
]]>Agencies
[Federal Register Volume 71, Number 83 (Monday, May 1, 2006)]
[Notices]
[Pages 25624-25628]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-6506]
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
SBA Lender Risk Rating System Notice and Request for Comments
SUMMARY: SBA is proposing for comment a lender risk rating system. The
lender risk rating system is an internal tool to assist SBA in
assessing the risk of each active 7(a) Lender and Certified Development
Company's (``SBA Lender'') SBA loan operations, and loan portfolio, on
a uniform basis and for identifying those institutions whose SBA loan
operations and portfolio require additional SBA monitoring or other
action. It is also a vehicle for assessing the aggregate strength of
SBA's 7(a) and 504 portfolios. Under the lender risk rating system, SBA
would assign each Lender a composite rating based on certain portfolio
performance factors, which may be overridden in some cases due to
Lender specific factors that may be indicative of a higher or lower
level of risk. SBA Lenders would have access to their own ratings
through SBA's Lender Portal.
DATES: SBA must receive comments on or before June 15, 2006.
ADDRESSES: You may submit comments by any of the following methods (1)
E-mail proposedriskrating@sba.gov; (2) Fax: (202) 205-6831; (3) Mail:
John M. White, Deputy Associate Administrator, Office of Lender
Oversight, U.S. Small Business Administration, 409 Third Street, SW.,
Washington, DC 20416; (4) Hand Delivery/Courier: 409 Third Street, SW.,
Washington, DC 20416, c/o John M. White.
FOR FURTHER INFORMATION CONTACT: John M. White, Deputy Associate
Administrator, Office of Lender Oversight, U.S. Small Business
Administration, 409 Third Street, SW., Washington, DC 20416, (202) 205-
3049.
SUPPLEMENTARY INFORMATION:
Background
SBA is developing an internal risk rating system for assessing an
SBA Lender's 7(a) or 504 loan portfolio (i.e., loan portfolio
performance). The risk rating system will be an internal tool that will
assist SBA in assessing the risk of a Lender's 7(a) and 504 loan
performance on a uniform basis and identify those Lenders whose
portfolio performance demonstrates the need for additional SBA
monitoring or other action. It is not intended to be a Lender grading
system. The lender risk rating system will also serve as a vehicle to
measure the aggregate strength of SBA's overall 7(a) and 504 loan
portfolios and to assist SBA in managing the related risk. SBA will use
Lender risk ratings to make more effective use of its on-site and off-
site lender review and assessments resources. The proposed risk rating
methodology is set forth below. SBA is soliciting comments on the risk
rating methodology. During the comment period, SBA will provide Lenders
access to their own preliminary risk ratings through SBA's Lender
Portal. A more detailed discussion of the risk rating proposal and
portal access follows.
Risk Rating Proposal
Overview
Under SBA's proposed risk rating system, SBA would assign all
Lenders a composite rating. The composite rating would reflect SBA's
assessment of the potential risk to the government of that Lender's SBA
portfolio performance.
For 7(a) Lenders, SBA would base the composite rating on four
common components or factors. The common factors for 7(a) Lenders would
be as follows: (i) 12 month actual purchase rate; (ii) problem loan
rate; (iii) three month change in the small business predictive score
(SBPS), which is a small business credit score on loans in the 7(a)
Lender's portfolio; and (iv) projected purchase rate derived from the
SBPS.
For CDCs, SBA would base the composite rating on three common
components or factors. The common factors for CDCs would be as follows:
(i) 12 month actual purchase rate; (ii) problem loan rate; and (iii)
average SBPS on loans in the 504 Lender's portfolio. The third factor
replaces the third and fourth factors used for 7(a) Lenders because it
was found, during the testing process, to be more predictive of SBA
purchases for 504 Lenders.
In general, these factors reflect both historical lender
performance and projected future performance. The factors are derived
through formulas developed using regression analysis validated and
tested by industry experts. SBA would perform quarterly calculations on
the common factors for each Lender, so that Lenders' composite risk
ratings would be updated on a quarterly basis. Each of the factors is
described in more detail in the Rating Components section below.
The composite risk rating is a measure of how each Lender's loan
performance compares to the loan performance of its peers. Thus, an
individual Lender's overall loan performance (using all common factors)
would be compared to its peers to derive that Lender's composite risk
rating. Lenders whose overall portfolio performance (using all of the
common factors) is worse than their peers will receive a worse, or
higher score, while Lenders whose overall portfolio performance is
better than their peers will receive a better, or lower, score.
SBA recognizes that it may be inequitable to compare all Lenders in
a risk rating system, without separating them into peer groups, because
changes in loan performance would have dramatically different impacts
on the portfolio performance of Lenders of different sizes. For
example, the purchase of one loan from a Lender would have a much
higher impact on the actual purchase rate component of a Lender with a
small portfolio than it would on the actual purchase rate of a Lender
with a large portfolio. Therefore, SBA has established peer groups to
minimize the differences that could result from changes in loan
performance for portfolios of different sizes. The peer groups are as
follows (based on outstanding SBA guaranteed dollars):
[[Page 25625]]
------------------------------------------------------------------------
7(a) Lender Peer Groups CDC Peer Groups
------------------------------------------------------------------------
$100,000,000 or more............... $100,000,000 or more.
$10,000,000-$99,999,999............ $30,000,000-$99,999,999.
$4,000,000-$9,999,999.............. $10,000,000-$29,999,999.
$1,000,000-$3,999,999.............. $5,000,000-$9,999,999.
$0-$999,999 (lenders disbursed at Less than $5,000,000.
least one loan in past 12 months).
$0-$999,999 (lenders did not
disburse at least one loan in past
12 months).
------------------------------------------------------------------------
As noted above, the common components would be used to derive a
composite risk rating for each 7(a) and 504 Lender. Under the proposal,
no single component factor would normally decide the Lender's composite
rating. However, depending upon the size of the peer group, and the
variation between a Lender's performance and that of its peers, a
single factor could carry a disproportionate weight among the three or
four components.
Composite Rating
SBA would assign a composite rating of 1 to 5 to each Lender based
upon their portfolio performance. A rating of 1 would indicate strong
portfolio performance, least risk, and the least degree of SBA
management oversight is needed (relative to other Lenders in their peer
group), while a 5 rating would indicate weak portfolio performance,
highest risk, and therefore, the highest degree of SBA management
oversight. SBA proposes the following definitions for the composite
ratings.
Composite 1--The SBA operations of a Lender rated 1 would be
considered strong in every respect, and would likely score much better
than SBA averages in all or nearly all of the rating components
described in this notice. A Lender rated 1 would have relatively stable
component factors and overall composite rating from one quarter to the
next. Since the component factors measure previous performance, and
also attempt to predict future performance, a Lender rated 1 would be
more likely to have well below average historical purchase rates, as
well as well below average current problem loan rates that would
predict lower than average future purchase rates. Overall, loans in the
portfolio of a Lender rated 1 would demonstrate highly acceptable
credit quality and/or credit trends as measured by credit scores and
portfolio performance. A Lender rated 1 would typically also have a
well managed SBA loan program as demonstrated through on-site or off-
site reviews and assessments (of mid-size and larger Lenders). Based on
the strengths outlined in this composite rating, Lenders rated a 1
would present SBA with the least amount of risk, and would thus be
subject to the lowest level of SBA oversight compared to other Lenders
in the same peer group.
Composite 2--The SBA operations of a Lender rated 2 would be
considered good, and would likely be above average in all or nearly all
of the rating components described in this notice. A Lender rated a 2
would have component factors and a composite rating that would
typically be relatively stable from one quarter to the next. A Lender
rated 2 would be more likely to have below average previous
(historical) purchase rates, as well as below average current problem
loan rates that would predict lower than average future purchase rates.
Generally, loans in the portfolio of a Lender rated 2 would demonstrate
better-than-acceptable credit quality and/or credit trends as measured
by credit scores and portfolio performance. A Lender rated 2 would
likely have a generally well managed (i.e., a few minor exceptions or
findings) SBA loan program as demonstrated through on-site or off-site
reviews and assessments (of mid-size and large Lenders). Based on the
strengths outlined in this composite rating. Lenders rated a 2 would
present SBA with a lower level of risk, and would thus be subject to a
lower level of SBA oversight compared to other Lenders in the same peer
groups.
Composite 3--The SBA operations of a Lender rated 3 would be
considered about average in all or nearly all of the rating components
described in this notice. A Lender rated a 3 would have, on average,
component factors and an overall composite rating that would generally
be relatively stable from one quarter to the next. A Lender rated 3
would likely have average previous (historical) purchase rates (as
compared to their peers), as well as average current problem loans
rates that would predict future purchase rates in line with SBA
portfolio averages. Generally, loans in the portfolio of a Lender rated
3 would demonstrate acceptable credit quality and/or credit trends as
measured by credit scores and portfolio performance. A Lender rated 3
would have an adequate (i.e., some minor exceptions or findings, but
few if any major exceptions or findings, which can be corrected in the
normal course of business) SBA loan program as demonstrated through on-
site or off-site reviews and assessments (of mid-size and large
Lenders). However, Lenders rated a 3 would have room for improvement,
should monitor their portfolio closely, and consider methods to improve
loan performance. Based on the strengths and weaknesses outlined in
this composite rating, Lenders rated a 3 would present SBA with an
acceptable level of risk, and would thus be subject to standard SBA
oversight compared to other Lenders in the same peer group. Oversight
may include requests for corrective action plans.
Composite 4--The SBA operations of Lender rated 4 would be
considered below average in all or nearly all of the rating components
described in this notice. A Lender rated a 4 may have several changes
in any of its components factor rates; the component factors and
overall composite rating may demonstrate instability or negative
performance from one quarter to the next. A Lender rated 4 would be
likely have above average previous (historical) purchase rates (as
compared to their peers), as well as above average current problem loan
rates that would predict future purchase rates above SBA portfolio
averages. Generally, loans in the portfolio of a Lender rated 4 would
demonstrate somewhat less-than-acceptable credit quality and/or credit
trends as measured by credit scores and portfolio performance. A lender
rated 4 would likely have a poorly managed (i.e., both minor exceptions
or findings, and major exceptions or findings) SBA loan program as
demonstrated through on-site or off-site reviews and assessments (of
mid-size and large Lenders). Based on the weaknesses outlined in this
composite rating, Lenders rated a 4 would present SBA with a less-than-
acceptable level of risk, and would thus be subject to greater than
normal SBA oversight compared to other Lenders in the same peer group.
Oversight measures could include (but are not limited to) additional
reviews or assessments, requests for corrective action plans, and/or
removal from delegated loan programs, depending
[[Page 25626]]
upon the level of activity and peer group.
Composite 5--The SBA operations of a Lender rated 5 would be
considered well below average in all or nearly all of the rating
components described in this notice. A Lender rated a 5 is most likely
to have changes in any of its component factor rates, and have the
greatest likelihood to have their component factors and overall
composite rating demonstrate instability or negative performance from
one quarter to the next. A Lender rated 5 would be probably have well
above average previous (historical) purchase rates, as well as well
above average current problem loan rates that would predict future
purchase rates above SBA portfolio averages. Generally, loans in the
portfolio of a Lender rated 5 would demonstrate less-than-acceptable
credit quality and/or credit trends as measured by credit scores and
portfolio performance. A Lender rated 5 would likely have a record of
significant SBA program compliance issues as demonstrated through on-
site or off-site reviews and assessments (of mid-size and large
Lenders). Based on the substantial weaknesses outlined in this
composite rating, Lenders rated a 5 would present SBA with the highest
level of risk, and would thus be subject to extensive SBA oversight
compared to other Lenders in the same peer group. Oversight measures
could include (but are not limited to) additional reviews or
assessments, requests for corrective action plans, and and/or removal
from delegated loan programs, depending upon the level of activity and
peer group.
The descriptions within each Composite rating are not meant as
definitions of the ratings, but are given to provide, in general, the
characteristics a Lender receiving a particular rating may exhibit.
Consequently, a Lender assigned a particular composite rating may not
exhibit every characteristic described for that rating, nor would SBA's
action be limited to those stated in the descriptions.
In some cases, SBA may have reason to believe that a Lender's
calculated composite rating may not fully reflect the level of risk
that individual Lender presents. In those cases, SBA may override the
composite risk rating (either positively or negatively) and assign a
different composite score. Should a decision be made to override the
composite score, SBA will provide the Lender with an explanation of the
reason(s) for the override. More information on overrides of composite
ratings is provided in the overriding factors section of this notice.
SBA's proposal to base composite ratings on a numeric scale is
similar to rating systems used by bank regulators and other federal
loan guarantors. For example, SBA's composite rating of 1 is similar to
that of a bank regulator in that it is indicative of an institution
with strong performance and requiring little management oversight.
SBA's rating system is similar to those of other federal loan
guarantors because it measures risk and portfolio performance of loan
portfolios guaranteed by SBA, rather than measuring the quality of the
entire institution.
Rating Components
The 4 Common Components for 7(a) Lenders:
SBA's proposed quantitative risk rating system for 7(a) Lenders
features four common component factors. The four common rating
components are defined below.
(i) Past 12 Month Actual Purchase Rate--The Past 12 Month Actual
Purchase Rate is an historical measure of SBA purchases from the Lender
in the preceding 12 months. Thus, this component provides a measure of
Lender performance and risk as indicated by actual SBA purchases. SBA
calculates this ratio by dividing the sum of total gross dollars of the
Lender's loans purchased during the past 12 months (numerator) by the
sum of total gross outstanding dollars of their SBA loans outstanding
at the end of the 12-month period, plus gross dollars purchased during
the past 12 months (denominator).
(ii) Problem Loan Rate--The Problem Loan Rate provides an
indication of current Lender risk. This problem loan indicator helps
measure Lender performance and risk by showing current delinquencies
and liquidations, as well as predicting potential future purchases by
SBA. SBA calculates the problem loan rate by dividing total gross
outstanding dollars of a Lender's loans that are 90 days or more
delinquent plus gross dollars in liquidation, excluding purchases of
active loans, (numerator) by the total gross dollars outstanding
(denominator).
(iii) 3 Month Change in Small Business Predictive Scores (SBPS)--
The SBPS is a portfolio management (not origination) credit score based
upon a borrower's business credit report and principal's consumer
credit report. SBPS is a proprietary calculation provided by Dunn &
Bradstreet, under contract with SBA, and is compatible with Fair, Isaac
& Co.'s ``Liquid Credit'' origination score. This component signals
increasing or declining purchase risk by measuring changes in borrower
credit trends, and acts as a predictor of possible future loan
delinquencies, liquidations, and SBA purchases. The 3 month change in
SBPS is calculated by measuring the percentage change, on a dollar-
weighted average basis, of the SBPS on all outstanding SBA loans held
by the lender, from the previous quarter to the current quarter.
(iv) Projected Purchase Rate--The Projected Purchase Rate is a
predictive measure of the probability of the amount of SBA guaranteed
dollars in a Lender's portfolio that are likely to be purchased by SBA.
This factor uses credit bureau data on a Lender's individual SBA loans
to project the purchase rate of a Lender's SBA portfolio. It is a 12-
month projection of future performance based on the most current credit
data on a borrower's payment history. For each of a Lender's SBA loans
outstanding, SBA multiplies the amount of guaranteed loan dollars
outstanding by the probability of its purchase (as determined by the
SBPS of the individual loan) and totals the sum of each individual loan
outstanding. This total (numerator) is then divided by the Lender's
total SBA-guaranteed dollars outstanding (denominator).
The 3 Common Components for CDCs:
SBA's proposed quantitative risk rating system for 504 Lenders
features three common component factors. The three common rating
components are defined below.
(i) Past 12 Month Actual Purchase Rate--The Past 12 Month Actual
Purchase Rate is an historical measure of SBA purchases from the CDC in
the preceding 12 months. Thus, this component provides a measure of CDC
performance and risk as indicated by actual SBA purchases. SBA
calculates this ratio by dividing the sum of total SBA gross dollars of
the CDC's loans purchased during the past 12 months (numerator) by the
sum of total SBA gross dollars of their SBA loans outstanding at the
end of the 12-month period, plus total SBA gross dollars purchased
during the past 12 months (denominator).
(ii) Problem Loan Rate--The Problem Loan Rate provides an
indication of current CDC risk. This problem loan indicator helps
measure CDC performance and risk by showing current delinquencies and
liquidations, as well as predicting potential future purchases by SBA.
SBA calculates the problem loan rate by dividing the total SBA gross
dollars of a CDC's loans that are 90 days or more delinquent plus total
SBA gross dollars of a CDC's loans
[[Page 25627]]
in liquidation (numerator), by the total SBA gross dollars outstanding
(denominator).
(iii) Average Small Business Predictive Scores (SBPS)--The SBPS is
a portfolio management (not origination) credit score based upon a
borrower's business credit report and principal's consumer credit
report. SBPS is a proprietary calculation provided by Dunn &
Bradstreet, under contract with SBA, and is compatible with Fair, Isaac
& Co.'s ``Liquid Credit'' origination score. This component provides an
indication of the relative credit quality of the loans in a CDC's SBA
portfolio. The score is calculated from the average SBPS score of the
loans in a CDC's portfolio, weighted by each loan's guaranteed loan
dollars outstanding.
Each of the common components described above would reflect a
different means of measuring a Lender's risk to SBA in terms of loan
purchase data. Loan purchase metrics provide a core gauge of SBA
lending success and program risk. SBA believes a risk rating system
emphasizing purchase indicators would be a good measure of SBA lending
risk because purchases are a strong indicator of the cost to SBA, and
predictive of final charge offs and loan recoveries. In addition, loan
purchases are resource intensive and an administrative expense to SBA
that reduces SBA's ability to provide assistance to small businesses.
Finally, SBA is a ``gap'' lender, and purchases are a prime indicator
of the failure of the financing to assist in the growth and development
of small businesses.
Overriding Factors
In addition to the common components calculated through the use of
loan performance factors, the proposed risk rating system allows for
consideration of additional factors. The occurrence of these factors
may lead SBA to conclude that an individual lender's composite rating
is not fully reflective of its true risk. Therefore, the proposed risk
rating system would provide for the consideration of overriding
factors, which may only apply to a particular Lender or group of
Lenders, and permit SBA to adjust a Lender's overall composite rating.
The allowance of overriding factors in helping determine a Lender's
risk rating would enable SBA to use key risk factors that are not
necessarily applicable to all Lenders, but indicate a greater or lower
level of risk from a particular Lender than that which the calculated
score provides.
One of the most important overriding factors would be a Lender's
on-site risk-based reviews/assessments usually performed on SBA's
relatively large Lenders, or that may (under extraordinary
circumstances) be performed on other Lenders whose performance
demonstrates a highly unusual deviation from their peer group. SBA
conducts on-site reviews of large Lenders, performs safety and
soundness reviews of SBA Supervised Lenders, and uses certain off-site
evaluation measures for less active Lenders. Consequently, these
assessments, as a factor, may only be available for a fraction of SBA's
approximately 5200 Lenders. Examples of other overriding factors that
may be considered are: Early loan default trends; purchase rate or
projected purchase rate trends; abnormally high default, purchase or
liquidation rates; denial of liability occurrences; lending
concentrations; rapid growth of SBA lending; inadequate, incomplete, or
untimely reporting to SBA or inaccurate submission of required fees to
SBA; and enforcement actions of regulators or other authority. This
list is not all inclusive; however, SBA does not expect any of the
overriding factors to affect a significant number of composite scores.
Request for Comments
SBA is undertaking a deliberative development of the Lender risk
rating system. The proposed risk rating system utilizes predictive
modeling and behavioral scoring systems developed by private sector
industry leaders in credit risk analysis. SBA has and will continue to
perform annual validation testing on the risk rating system, and will
further refine the system as necessary to improve the predictability of
its risk scoring. SBA is requesting comments from the public on all
aspects of the proposed risk rating system.
To facilitate written comments on the proposed risk rating system,
SBA will provide Lenders access to their own preliminary risk ratings,
as well as average peer and portfolio performance information. SBA will
provide Lenders access to this information through the use of the
Lender Portal developed for SBA's Loan and Lender Monitoring System (L/
LMS). Once the risk rating system is finalized, Lenders will have
access to their final quarterly ratings through the portal. Additional
guidance on portal access follows.
Lender Portal
Overview
SBA intends to communicate Lender performance to Lenders through
the use of SBA's Lender Portal. The portal will allow Lenders to view
their own quarterly performance data, including their most current
composite risk rating. Lenders can also access data on peer group and
portfolio averages. Consequently, a Lender will be able to gauge its
performance relative to its peer group and the portfolio norm. While
Lenders can view their ratings, their performance indicators, and peer
and portfolio averages, they will not be able to view the individual
ratings and performance indicators of other Lenders. The quarterly
performance data will be overwritten on a quarterly basis; therefore,
SBA recommends that Lenders save their performance data for their own
tracking and trend analysis purposes.
Portal Data
SBA plans to update portal data quarterly approximately six to
eight weeks after a calendar quarter ends. Lenders will only be able to
access the most recent quarterly data. Lenders will not be able to
access previous quarters' data following an update.
Correcting Portal Data
Portal data includes both summary performance and credit quality
data. Because summary performance data is largely derived from data
that Lenders provide to SBA through 1502 and 172 Reports, Lenders bear
much of the responsibility for ensuring data accuracy. If a Lender
reviews its performance components and they do not comport with its own
data records, the Lender should confirm the accuracy of the underlying
data. If the Lender determines that the data is inaccurate, it should
seek to amend any incorrect data through SBA's normal processing
channels (for example--for loan performance data, Lender should contact
SBA's fiscal and transfer agent).
Credit quality data used to help establish certain component scores
is derived from credit bureau reports of the borrower business and its
principals/guarantors. To the extent that credit quality data relies on
information that a Lender provides on the business, its principals, and
guarantors contained in the loan application and as required to be
updated by the Lender, the Lender must take responsibility for ensuring
this information is correct, complete, and updated. SBA recognizes that
underlying borrower credit data cannot be changed by SBA or a Lender.
Therefore, any changes to data provided to credit bureaus must be
reported directly to Dunn & Bradstreet or Trans Union, as appropriate,
by the borrower. All corrections to portal data (both summary
performance and credit quality data) will be reflected in the
[[Page 25628]]
quarterly update following the quarter in which the correction is
entered.
Portal Access
Lenders with at least one outstanding SBA loan will be able to
apply for portal access. SBA will issue only one portal user account
per Lender. Lenders must submit initial requests for a portal user
account (or requests to switch or terminate a user) by regular or
overnight mail to SBA at the following address: Office of Lender
Oversight--Capital Access, Suite 8200; Mail Code 7011, ATTN: Lender
Portal, U.S. Small Business Administration, 409 Third Street, SW.,
Washington, DC 20416.
Lenders must take the following steps in requesting portal access:
(1) Request must be made by a senior officer of the Lender (Senior
VP or above).
(2) Request must be sent via regular or overnight mail to the
address provided above.
(3) Request must be made using the Lender's stationery.
(4) Request must include the user's business card.
(4) The stationery and business card should include the Lender's
name and address.
(5) The request should include the following data:
(a) SBA FIRS ID Number(s).
(b) Account user's name.
(c) Account user's title.
(d) Account user's mailing address at the Lender.
(e) Account user's telephone number at the Lender.
(f) Account user's e-mail address at the Lender.
(g) Requesting officer's name.
(h) Requesting officer's title.
(i) Requesting officer's mailing address at the Lender.
(j) Requesting officer's telephone number at the Lender.
(k) Requesting officer's e-mail address at the Lender.
Once SBA receives and approves the user request, the Agency will
forward the approval to SBA's portal contractor for issuance of a user
account name and password. The portal contractor will e-mail the user
his or her user name and password within approximately two weeks of
account approval. The user can then access its data by logging into the
Lender portal Web page at https://pdp.dnb.com/pdpsba/pdplogin.asp.
Lender Portal Responsibilities
Lenders are responsible for complying with SBA's requirements in
obtaining and maintaining the portal user accounts and passwords as set
forth below and as published from time to time. Lenders are also
responsible for timely informing SBA to terminate or switch an account
if the person to whom it was issued no longer holds that responsibility
for the Lender. Upon accessing the lender portal, Lenders must take
full responsibility for protecting the confidentiality of the user
password and lender risk rating information and for ensuring the
security of the data.
Confidentiality Agreement
By clicking on the Portal log-in button to access the SBA Lender
Information Portal (``Portal''), Lender will agree to use the
Confidential Information (defined in the Portal) contained in the
Portal only for confidential use within its own immediate corporate
organization, and to hold and maintain the Confidential Information in
confidence in accordance with the terms of the Agreement. Lender will
agree to restrict access to the Confidential Information to those of
its officers and employees who have a legitimate need to know such
information for the purpose of assisting the Lender in improving the
Lender's 7(a) or 504 program operations in conjunction with SBA's
Lender Oversight Program and SBA's portfolio management (each referred
to as a ``permitted party''), and to those for whom SBA has approved
access by prior written consent and for whom access is required by
applicable law or legal process. If such law or process requires Lender
to disclose the Confidential Information to any person other than a
permitted party, Lender will agree to promptly notify SBA and SBA's
Information Provider (defined below) in writing so that SBA and the
Information Provider have, within their sole discretion, the
opportunity to seek appropriate relief such as an injunction or
protective order prior to Lender's disclosure. In addition, Lender will
agree to ensure that each permitted party is aware of the requirements
of the Agreement and to ensure that each such permitted party agrees to
the terms and conditions. Lender will agree not to disclose, and will
agree to protect from disclosure, Lender's password to enter the
Portal. Further, any disclosure of Confidential Information other than
as permitted by the Agreement may result in appropriate action as
authorized by law. Lender also will agree to indemnify and hold
harmless each of SBA and any provider of the Confidential Information
from and against any and all claims, demands, suits, actions, and
liabilities to any degree based upon or resulting from the unauthorized
use or disclosure of the Confidential Information. ``Information
Provider'' means Dun & Bradstreet. (Mail Provider Information notice to
Dun & Bradstreet, Legal Department, 103 JFK Parkway, Short Hills, NJ
07078.)
No information contained in the Portal shall be relied upon for any
purpose other than SBA's lender oversight and SBA's portfolio
management purposes. In addition, Lender will acknowledge and agree
that the Confidentiality Agreement is for the benefit not only of the
SBA but also of any party providing the Confidential Information. Any
such party shall have the right and standing to pursue all legal and
equitable remedies against the Lender in the event of unauthorized use
or disclosure.
Portal Inquiries
For general inquiries, a Lender may submit its e-mail to
lender.portal@sba.gov. If a Lender needs to speak to an individual on a
non-technical matter, it may contact Paul Bishop at 202-205-7516. SBA
advises a Lender to state upfront its Lender name, address, FIRS
number, and user name to expedite processing of all inquiries.
Dated: April 26, 2006.
Michael W. Hager,
Associate Deputy Administrator, Office of Capital Access.
[FR Doc. E6-6506 Filed 4-28-06; 8:45 am]
BILLING CODE 8025-01-P
