[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