The Small Business Administration (SBA) announced updates to the Universal Purchase Package (UPP) effective December 10, 2024, revising the version initially introduced in August 2023. These updates aim to streamline processes for lenders while ensuring thorough compliance with SBA requirements. Here are some key changes and some questions lenders may be asking themselves:
Tab 2: Handling of Liens on Secondary Collateral for SBA Loan Charge-Offs
Those managing the liquidation and charge-off of SBA loans know that many loans are secured by liens on secondary real estate collateral, often have minimal equity at the time of default. For conventional loans, lenders would generally leave the lien of record in case there was an ability to receive funds in the event of a future sale. However, there was uncertainty about whether lenders could retain such liens when charging off an SBA loan since this would mean that there was still an opportunity for recovery.
The revised UPP includes a dedicated section where lenders can attach evidence of “recordation for remaining collateral, including mortgages, deeds of trust, and judgments.” This addition implies that, in certain circumstances, lenders may be able to leave liens on record while charging off the loan. Lenders should keep in mind the regulations around hardship and abandonment when assessing whether their situation would qualify for this option. This change appears to provide clarity and flexibility, allowing lenders to manage these situations more effectively and with greater confidence in compliance.
Tab 5: SBA Forms 159 and 601 Part of Eligibility
In the updated UPP, lenders are requested to include copies of SBA Form 159 and SBA Form 601, if applicable. However, no explanation is provided for the inclusion of these forms in this section, leaving many lenders puzzled about the intent behind the change.
Traditionally, these forms have not been associated with eligibility determinations, prompting lenders to wonder if the SBA is moving toward incorporating these forms into its eligibility analysis. If that is the case, it raises important questions about the potential impact on both lenders and borrowers.
For now, while the inclusion of these forms in Tab 5 remains ambiguous, lenders should be sure to obtain the Form 159 and Form 601 when required and should keep an eye on future guidance from the SBA for clarity on this issue.
Tab 7: Lenders Should “Do-What-You-Do” For Disbursement Document
The revised Tab 7 advises lenders to “attach documentation supporting each disbursement as outlined in the SOP 50 10 in effect at the time of guaranty purchase request.” While this guidance sounds straightforward, the SOP 50 10 7.1 simply states that lenders should “do-what-you-do” for similarly sized non-SBA loans.
To ensure compliance and reduce risk, lenders should review their conventional loan policies for loans of similar size and complexity. Consider what documentation is standard and prudent to demonstrate how loans are disbursed and adopt consistent practices for SBA loans.
Conclusion
The updates to the UPP reflect the SBA’s ongoing efforts to enhance clarity and streamline processes for lenders. While some changes, such as the handling of liens on secondary collateral, provide greater certainty, other updates, like the inclusion of SBA Forms 159 and 601 in eligibility considerations, raise new questions. Additionally, the emphasis on aligning disbursement documentation with conventional practices underscores the importance of lenders maintaining thorough and consistent procedures.
Lenders should familiarize themselves with the updated requirements to ensure a seamless transition and avoid delays in guaranty purchase reviews. Lenders should also closely review their internal policies and stay attuned to future SBA guidance to ensure compliance.
For questions regarding the UPP, contact the attorneys at Starfield & Smith at 215-542-7070 or email us at info@starfieldsmith.com.
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