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7(a), SBA Express and 504 Loan Servicing, Liquidation and Purchase RAPID IMPROVEMENT CAMPAIGN I

7(a), SBA Express and 504 Loan Servicing, Liquidation and Purchase RAPID IMPROVEMENT CAMPAIGN I. Leadership Jumpstart Event Report December 15, 2006. Contents. Recap of Campaign Background and Charter Leadership Jumpstart Event Participants and Process Executive Summary

MikeCarlo
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7(a), SBA Express and 504 Loan Servicing, Liquidation and Purchase RAPID IMPROVEMENT CAMPAIGN I

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  1. 7(a), SBAExpress and 504 Loan Servicing, Liquidation and Purchase RAPID IMPROVEMENT CAMPAIGN I Leadership Jumpstart Event Report December 15, 2006

  2. Contents • Recap of Campaign Background and Charter • Leadership Jumpstart Event Participants and Process • Executive Summary • Incoming Participant Perspectives on Change • Understanding the OCA Loan Processing Performance System • End-to-End “As Is” Performance System • Breakdown of Loan Portfolios: 7(a), Express, 504 and Recovery • 7(a) Loan Process • Value-Stream Map • Process Efficiency Analysis & Breakthrough Opportunity Size-Up • Breakthrough Vision for Change & Redesign Process Map VII. SBAExpress Loan Process • Value-Stream Map • Process Efficiency Analysis & Breakthrough Opportunity Size-Up • Breakthrough Vision for Change & Redesign Process Map

  3. Contents (Cont’d) • 504 Loan Process • Value-Stream Map • Process Efficiency Analysis & Breakthrough Opportunity Size-Up • Breakthrough Vision for Change & Redesign Process Map • Asset Recovery Process • Value-Stream Map • Process Efficiency Analysis & Breakthrough Opportunity Size-Up • Breakthrough Vision for Change & Redesign Process Map • Summary • Productivity Gain Projection • Improvement Opportunity Portfolio Recommendations • 7(a), SBAExpress, 504, Asset Recovery, and Enterprise-Wide Improvement Opportunity Portfolios • Rapid Improvement Campaign I Action Plan • Overview • Proposed Rapid Action Team Charters and Assignment • Proposed Project Leadership Decision Projects and Assignments • Proposed Campaign Calendar and Milestones

  4. Foreword – Why Change? “We are impressed with the people at SBA. The agency has become customer oriented and it’s clear that SBA wants a successful partnership with lenders…But we want consistent, reasonable, and timely service across the SBA. We should know what to expect and when to expect it based on predictive processes and consistent quality.” - SBA Lender Partner

  5. Rapid Improvement Campaign I Charter Align OCA and other key stakeholder organizations on the breakthrough vision and high priority improvement opportunities for achieving a minimum 25% improvement in loan processing performance in fiscal year 2007. GOAL • Elimination of non-value adding activities that frees up more staff time for proactive customer service. • More transparent, clear accountability and ownership of performance – both loan portfolio and loan processing. • Speed in driving improvement recommendations into action. SUCCESS METRICS Show measurable improvements by:March 31, 2007 START: November 28, 2006 CALENDARCOMMITMENTS

  6. Rapid Improvement Campaign I Charter (Cont’d) • Streamlined processes for servicing, liquidating and purchasing loans consistent across Processing Centers. • Scorecard for linking and tracking loan portfolio and loan processing performance. • Reduction in all processing backlogs. • Simplified, risk-adjusted SOPs that promote both efficiency, customer service and compliance. • Proactive customer service that anticipates resources and prevents problems before they happen. EXPECTEDCHAMPAIGNOUTPUTS

  7. Leadership Jumpstart Event Participant List CAMPAIGN EXECUTIVE BOARD MEMBERS: CAMPAIGN SPONSORS: Steve PrestonMike HagerMike PappasJenni Main Jim HammersleyBryan Hooper Katy Ballenger Steve GalvanChristine LiuJanet Tasker Mike HagerJanet TaskerJohn Miller JUMPSTART EVENT PARTICIPANTS Mike Hager, OCA HQ Janet Tasker, OCA HQ Jim Hammersley, OFA HQ John Miller, OCA HQ Walter Intlekofer, OFA HQSteve Kucharski, OFA HQKaty Ballenger, OCA HQ Stan Nakano, District Office, UtahDavid Dickson, District Office, PennsylvaniaLinda Nelson, District Office, Arkansas Hien Nguyen, Sacramento LPCLora Loethen, OLONina Levine, OGCEric Benderson, OGC Raymond Baca, OCFO, Colorado Terry Hetherington, Santa Ana NDLLC Dick Blewett, NGPCDana Relyea, NGPCGraciela Gatell, NGPC Hazel Zackery, NGPCRick Geyer, NGPCVanessa Piccioni, NGPC Denis McCaghey, Little Rock CLSCNique Carrington, Little Rock CLSCJerry Johnson, Little Rock CLSCWayne Reid, Little Rock CLSCJoel Stiner, Fresno CLSCLeslie Niswander, Fresno CLSCGary Wamhof, Fresno CLSCTheresa Pike, Fresno CLSC Rick Adams, Fresno CLSC Bryan Hooper, OLO FACILITATION TEAM Mike Chervenic, ICOR Partners Kamal Kaur, ICOR Partners Greg Kurgansky, ICOR Partners Irina Carnevale, ICOR Partners Rick Tucci, Leap Technologies Bob Daly, Leap Technologies

  8. Leadership Jumpstart Event Methodology DEFINE the Process & Requirements • What is the process and the requirements for meeting customer expectations? 1 • What’s adding value in the process today? Where’s the waste? What’s the opportunity for performance gain? MEASURE “AS IS” Performance 2 • What is the shift in process design required to achieve breakthrough performance? ANALYZE What Needs to Change 3 INNOVATE Breakthrough Designs& Solutions • How can we apply Lean, Six Sigma and innovative thinking to make a quantum improvement in performance? 4 CONTROL For Rapid,Risk-ManagedImplementation • How do we accelerate implementation of improvements while minimizing risk? 5

  9. Executive Summary The Jumpstart Event Team validated the Pre-Event Baseline Assessment conclusion that the servicing, liquidation and purchase process for SBA 7(a), SBAExpress, and 504 loans is overly complex and ripe with opportunities to improve productivity and customer service. The Jumpstart Team identified many complicating factors that currently block a breakthrough in loan service performance including: The broad network of stakeholders with different interests and priorities; a large distribution system of lenders of varying experience and loan servicing discipline; disconnected information systems; burdensome SOPs; and, performance metrics and goals that tend to reward activity over analysis and continuous improvement. To unravel the current complexity, the Jumpstart team focused on analyzing the end-to-end performance of four core value streams that drive loan servicing performance: 7(a) Loans; SBAExpress Loans; 504 Loans and Asset Recovery of these loans.

  10. Executive Summary (Cont’d) Comparison of “As Is” performance on these core value streams to potential performance (when delays and rework are eliminated) indicates that a 25% improvement in processing efficiency (measured by factors such as processing turn time, total “touch time” and cost per loan and backlog levels) is well within reach through effective, coordinated process improvement action. The Jumpstart Team crafted a set of Breakthrough Redesign Maps to provide a target for aiming and executing actions to improve performance in each core loan processing value stream. Improvement Opportunity Portfolios were generated for each core value stream and sorted for immediate, mid-term and longer-term action. A total of 43 actions were targeted for execution over the next 90 days using a combination of Rapid Action Teams and Individual Project Champions. The resulting Rapid Improvement Campaign I Action Plan developed from the Jumpstart Team’s work will allow OCA to move ahead aggressively, but with tight controls, to breakdown the barriers to improved performance and build greater teamwork and cooperation both within OCA and across stakeholder communities.

  11. Incoming Participant Perspectives on Change Leadership Jumpstart Event

  12. Incoming Perspectives of Jumpstart Participants What are your highest hopes for what this Rapid Improvement Campaign can accomplish? • We will get the resources needed to support changes. • We will clarify how to define campaign success – what does a 25% improvement in processing efficiency mean? • We will identify current processes that we can eliminate through automation, delegation to partners or by just not doing them. • We will initiate risk-adjusted processing and oversight. • We will achieve consistency in all processes and policies across Centers without limiting creativity and flexibility. • We will move from operating as individual silos to working together across the entire SBA. • We will integrate our IT systems and make them more user-friendly to help us get out from under the paper. • We will look at the complete life-cycle of the loan and see it from the lender and borrower perspective. • We will get all of our people to understand the “Big” SBA mission.

  13. Incoming Perspectives of Jumpstart Participants What do you see as the biggest challenges to achieving the goals of this Rapid Improvement Campaign? • Can we get to consensus on what are acceptable levels of risk in loan processing? • Can we find the fine line between “fast-forward” and being diligent in managing lender compliance. • Can we educate lenders on our process who only purchase two loans a year? • Can we really challenge existing SOPs and speed revisions? • Can we shift the orientation of operating in silos to collaborating across lines? • Can we ignite our people back at our offices to make the change? • Can we get the OIG to support us?

  14. Incoming Perspectives of Jumpstart Participants What are the paradigms (existing beliefs, assumptions and “sacred cows”) that must be “busted” to achieve the goals of this Rapid Improvement Campaign? • SBA can’t trust lenders to follow good lending practices and our processes, so we need lots of oversight, signatures and paper to manage risk. • SBA can’t trust its employees to follow procedures so we need multiple reviews, signatures and paper to ensure compliance. • You can’t trust other SBA departments to support you or make decisions so don’t engage them in designing solutions to problems. • SBA’s mission is to not lose a dime on any loan – risk is bad! • It takes too long and is too hard to change SOPs, so why bother? • We can’t hold lenders accountable or they will stop doing business with SBA. • SBA is bound by Office of Personnel Management classifications. • Modernization of SBA’s IT systems will solve all loan processing problems. • Experienced employees are easily replaced in a loan processing operation like ours. • Loan servicing is very different from liquidation which is different from purchase – “it’s all unique.” • OIG, OMB and Congress will never support a major change in the status quo. • If you’re uncomfortable with change just wait it out.

  15. Leadership Jumpstart Event Define Step Work Products

  16. End-to-End Performance System Map for7(a), SBAExpress, and 504 Loans No defined process for quickly removing barriers – black hole syndrome. Quantity of servicing actions emphasis vs. quality andvalue of actions. Strategy, Structure & Cultural Influences Process Metrics • Tone at the top that either supports or stops change • Funding cycle and political influences • Pressure on Districts to drive loan volume without regard for processing capacity • Inconsistent policies toward risk tolerance • Lack of trust • Number of loan servicing actions completed • Servicing cost per loan • Ratings on lender loss performance • Lender, customer satisfaction surveys Large number of lenders—difficult to manage quality. Many stakeholders with different interests and priorities. Suppliers/Partners Inputs Outputs Customers/Partners • Borrowers • Lenders • Field Offices • SBA Employees • SBA Contractors/Vendors • Oversight Groups (OGC, OIG, etc.) • Loan Applications • Lender Support Requests • Change Requests • 1502 (Loan Data) Input • Regulations • SOPs • Loan Decision • Completed Loan • Final Loan Disbursement • Servicing Actions • Loan Files (Paper & Electronic) • Payments to Lenders • Performance Data (Error reports, portfolio reports, etc.) • Borrower • Lenders • District Offices • SBA Employees • SBA Contractors, Vendors • Oversight Groups(OGC, OIG, etc.)

  17. NAGGL/NADCO SBA OCIO LenderPractices ComplianceAudits - IPIA SOPRevisionProcess Regulations &Statutes StandardOperatingProcedures Local/Home-Grown ITApplications AgencyIT Systems SBA OGC& OIG End-to-End Performance System Map for7(a), SBAExpress and 504 Loans (cont’d) End-to-end life cycle of individual loans difficult to track Many, many SBA touches of loan file High percentage of loan actions related to error correction Each Center operates independently Macro Process Flow       District Office, Lender, Web Marketing of SBA Loan Programs Loan ApplicationReceived in Processing Center(Sacramento) Loan File Sent toServicing Centers (Little Rock & Fresno) Loan Serviced, Cancelled or Retired (Little Rock & Fresno) Loan Liquidated and Purchased(Little Rock, Fresno & Herndon) Loan File sent to Records Center(Dallas, TX, San Bruno, CA) Minimal focus on influencing lender practices Many non-integrated, work around systems Serial, non-collaborative process for revising SOPs Supporting Activities, Processes & Systems

  18. Loan Processing Value Streams PURPOSE VALUE-ADD CRITICALPROCESSING REQUIREMENTS Capital core access for under-serviced small businesses Flexible array of loan options • Effective education of borrowers and lender partners. • Pre-approval risk assessment rating and oversight level slotting. 7(a) Loans • Highly efficient self-service loan approval process. • Tested risk criteria and standards. • Mistake-proof systems to minimize errors. Rapid, supplemental capital access for under serviced small businesses Accelerated processing for fast injection of funds SBAExpressLoans • Strong partnership with program lenders (CDCs). • High-level of lender delegation based on processing skill and experience. Fixed asset funding to promote economic development in disadvantaged communities through small business Lower rate for large loan values 504 Loans • Skilled and experienced specialists in liquidation and purchasing. • Defined transparent process to all stakeholders. • Single point of ownership for case management. Maximize recovery of dollars on defaulted 504, 7(a) and SBAExpress Loans Recovers funds for reapplication into the market AssetRecovery

  19. Loan Processing Leadership Jumpstart Event 7(a) Loan Process “As Is” to Breakthrough Analysis

  20. P3 SBA Collects Loan File at Disbursement and sends File Electronically to Service Center Ship File toServicing Center Receive LoanApplication LoanUnderwriting(Non-delegated) ND 2b Make eligibility/credit decision in single review 2a 3 1 7(a) Loan Process Value-Stream Map (Page 1)(Preferred Lender and Non-Delegated Lender) Value-Added Activity Flow P1 P2 PLPLoan Collect Minimal Information in Application toReserve Funds Lender ModifiesLoan File asChangesOccur All Lenders Sign-OffUpfront on SBAConditions forPurchase ND 1 ND 2a ND 2c ND 3 Non-DelegatedLoan • Queue applications by size/credit score • Direct Large/High -risk for full understanding Mistake ProofApplication to Prevent Incomplete Erroneous Entry into System Ship Complete, Error Free Package to Servicing Center (until electronic transfer is available) Notify Lender/Borrower of Decision and Conditions End-to-End Process Flow Today • Enter Info.Into system • Reconsid- eration • Legal Review • Re-loop • Screen • Create paper file • Enter into system • Assign to loan office(if non-delegated) • Check eligibility • Legal review of eligibility • Underwrite loan • Final action decision 2b Final LoanPrep & Review Is manual screen required? Multiple handling Is legal review eligibility needed if criteria is clear? Cost of shipping and storing files Why create a paper file upfront? Back for forth fax time and effort Incoming errors entered into system Idle employee time waiting for applications Areas of Waste

  21. 5 4 6 7(a) Loan Process Value-Stream Map (Page 2)(Preferred Lender and Non-Delegated Lender) Value-Added Activity Flow P4 No change to “As Is” unless all electronic files No change to “As Is” unless all electronic files PLPLoan Delegate all Servicing to Lender Value AssistLenders/Borrowersto Mitigate Risk ND 4 Non-DelegatedLoan Delegate allServicing to Lender No change to “As Is” unless all electronic files No change to “As Is” unless all electronic files End-to-End Process Flow Today • Incoming request • Assign to loan officer • Recommendation by loan officer • Legal review • Final Action • Notify lender • Reconsideration • Re-loop • Locate file • Update system • Ship file to purchase/recovery center • Locate file • Dispose file to NARA Receive Notificationof Adverse Condition/ Potential Default Loan paidin Full Service theLoan Time locating loan files 1502 Error correction time and expense Shipping costs Excess oversight on low risk lenders Oversight driven by lack of lender education and mistake-proofing Areas of Waste

  22. 7(a) Loan Process – Preferred Lender“As Is” vs. Value-Streamed Efficiency Comparison Est. “Touch Time”1Cycle Time Est. “Touch Time” 1Cycle Time Est.First-PassQuality2 Est.First-PassQuality2 “As Is” Process Value-Stream Process • ReceiveMinimal Info Needed • ReceiveApplication 10 mins per application 5 mins per application 100% 98% 20 mins per application (Up to 3-day turnaround) 0(No turnaround required) • Under-Writing • Lender Modify file as changes occur 100% 98% 10 mins per application (Up to 3-day turnaround) 0(ElectronicTransfer) • Transfer uponcollection of complete file from lender • Ship File toServicing Center. 100% 98% • LoanServicing Up to 4 hrsforAction Reviews • All servicing action delegated to lender upon qualification 1 hr perAction Review 95% 80% 0(Electronic Transfer) • File Disposition (Purchase or Paid-In-Full) • File Disposition (Purchase or Paid-In-Full) 30 mins 100% 98% 5 hrs 10 min“Touch Time” 1 hr 5 min“Touch Time” 95% TOTALS 73.8% TOTALS * Based on one action per file. (1) “Touch Time” = Actual Employee Time (2) First-Pass Quality = Percentage that action is done without rework

  23. 7(a) Loan Process – Non-Delegated Lender“As Is” vs. Value-Streamed Efficiency Comparison Est. “Touch Time”Cycle Time Est. “Touch Time”Cycle Time Est. “Touch Time”Cycle Time Est.First-PassQuality (2) Est.First-PassQuality (2) “As Is” Process Value-Stream Process • ReceiveMinimal Info Needed • ReceiveApplication 30 mins per application 5 mins per application 100% 75% 9 hrs per application (Up to 10-day turnaround) 90 minsper File • Under-Writing • Single-Pass under-writing upon full pkg. file receipt from lender 95% 65% 10 mins per application (Up to 3-day turnaround) 0(ElectronicTransfer) • Transfer uponcollection of complete file from lender • Ship File toServicing Ctr. 100% 98% • LoanServicing Up to 4 hrs30 min per Action Reviewed • All servicing action delegated to lender upon qualification 1 hr perAction Reviewed 95% 70% 0(Electronic Transfer) • File Disposition (Purchase or Paid-In-Full) • File Disposition (Purchase or Paid-In-Full) 30 mins 100% 98% 14 hrs 40 min“Touch Time” 2 hrs 35 min“Touch Time” 90% TOTALS 32.8% TOTALS * Based on one action per file. (1) “Touch Time” = Actual Employee Time (2) First-Pass Quality = Percentage that action is done without rework

  24. 7(a) Loan ProcessBreakthrough Opportunity Size-Up Major Source of Waste/Opportunity for Improvementin “As Is” Process Estimated Cost of“As Is”Operation Estimated Cost ofValue-Streamed Operation PotentialSavings (1) Move from paper loan application submission to all electronic submission by non-delegated lenders – including ability to make on-line corrections through life-cycle of the loan 12 hrs “Touch Time” per loan(Non-Delegated Loans) 2.5 hrs “Touch Time” per loan(Non-Delegated Loans) 9.5 hrs per loan X 6,900 Non-Delegated Loans per year= 65,550 hrs per year 33 full time equivalents (2) Move to full delegated authority for servicing all preferred lender loans Ave of 90 mins per action reviewed Ave of 60 mins per action reviewed 30 min per loan X 39,100 Loans per year= 19,550 hrs per year 10 full time equivalents (3) Move to 1502 error correction to lender (via Colson) with SBA review at liquidation or “60-day late cases” only 7,800 hrs per year in error correction action(Approx 4 full-timeequivalents) 826 hrs per year in error correction action(Approx .5 full-timeequivalents) 6,974 hrs per year 3.5 full-time equivalents * Based on 1,950 hrs per year = one FTE

  25. 7(a) Loan Process Breakthrough Vision for Change From This Today … To This Tomorrow … Paper-intensive process. Paperless, fully electronic environment for both preferred and non-delegated loans. Complex, burdensome Standard Operating Procedures that are difficult to monitor, understand and actually increase the probability of error. A streamlined set of SOPs designed to ensure compliance to a simple-to-understand and use guidebook for both SBA employees, lenders and borrowers that reduces the probability of error. SBA-intensive loan servicing that duplicates lender oversight while loan is active; creates backlogs and takes away time for lender education and value-added assistance. Fully-delegated lender servicing on all loans with effective guidance by SBA upfront and efficient, single-pass review at time of disposition leading to zero backlogs. Consistent interpretation and application of 7(a) loan regulations across the nation with a transparent process that lenders could understand. Inconsistent loan origination review processes both within and across state lines. Difficult and inconsistent access to SBA information and loan servicing personnel. A user-friendly self-help Web site for lenders and borrowers and a Call Center for 7(a) loans to direct callers to “Level II” support.

  26. Lender education provided as needed to prevent downstream errors Web-enabled guidance and access to “live” support as needed Standard credit scoring tool Web enabled notification to lender 7(a) loan self-help Web site (lender/borrower guidance and application form) Call Center to request “ear-to-ear” support Web enabled reporting, charges, mods, etc. Web-based electronic signatures One loan tracking system – linked and sync to Web 7(a) Loan Process (All Loans) Breakthrough Redesign Map Expanded oversight focused on finding trends in lender processing errors, mistake-proofing and education Lender delegation of authority redefined based on experience, risk, profile, servicing quality Revised SOPs to support single pass review by SBA New policy to support use of e-signatures (vs. “wet”) 1502 errors corrected by FTA/Colson Governance        Loanapplication createdon-line Single pass/single touchSBA review (eligibility & credit) Lender notified/ sign-off on servicing and purchasestandards Lender funds loan guarantee fees electronically Disposition • Paid in full (send to NARA) • Recovery (send to Recovery Center) Lean ProcessFlow SBA inventories loan to servicing status Decision approval or decline Lenders use CPR for changes, mods reporting fees, etc. EnablingTools Ongoing lender education programs (District supported)

  27. Loan Processing Leadership Jumpstart Event SBAExpress Loan Process “As Is” to Breakthrough Analysis

  28. 8 SBA Review Approve Part of Guaranty Claim & C/O 3 Process Application – Electronic (Issue Loan Number) Input/Review Data. Create File (Paper or Electronic) 6 1 2 5 4 6 2 4 5 5 SBAExpress Processing Value-Stream Map Value-Added Activity Flow 7 Lender Electronic Submission of Guaranty Purchase Package 3 Lender Initiated Electronic Servicing Actions (SBA / Non-SBA concurrence) 2 Auto Electronic Loan # Assignment Receipt Lender signs Guaranty/Conditions Document Upfront 4 Monitoring Loan Status Electronic Only – Lender or FTA 6 Lender Electronic Collection of Recovery Data 5 FTA owns Reconciliation Process 1 Accurate Electronic Lender Input 100% End-to-End Process Flow Today • Loan Increases • Loan Modifications • Loan Cancellations • Collect 1502 Lender Reports • Guaranty Fee Collection • Original Guaranty Fee Letter Put Loans in Liquidation Status Application Submitted Via Fax or E-Tran Ship Files. Receive Files (Docket Files) Service Files FTA PMG/System Shuts Down 20th-30th of each Month (1502 System) Reduce Electronic Files to Paper Reinstatement. Multiple Day N-Screen Process (2-3 Days) Re-Keying of Data Two Processing Tracks (Paper and Electronic) Modifications Not Electronic Looking in Two Places for Full Information FTA Does Not Resolve All Reporting Issues Incorrect Data Entry Manually Input Loan Collateral Information to Mainframe Reduce Electronic Files to Paper Guaranty Fee Estimation/Calculation Complex and Inconsistent 3 Spending money & time on shipping Manually Input Changes to “In Liquidation” Status in Mainframe by Multiple Offices Areas of Waste

  29. 10 9 8 7 7 10 9 8 SBAExpress Loan Processing Value-Stream Map (Cont.) Value-Added Activity Flow End-to-End Process Flow Today - Process Lender Release / Cancellation of Guaranty - Submit Denial of Guaranty to HQ - Review and Approve Liquidation (Offers in Compromise) Paid in Full/File Closed. Ship to Federal Records Center. Expedite Purchase. Not Charged Off Immediately Charge Off Loans Perform Purchase Manually Input Guarantor Information/ Multiple Input Screens (Over 4) 2nd Review of Loans at Charge-Off Purchase Package Not Electronic Expedited Purchase Process Wastes of Time Review Compromise Action and Decision Create Paper File Pull and Ship Paid in Full Files Areas of Waste

  30. SBAExpress Loan Process –“As Is” vs. Value-Streamed Efficiency Comparison * Based on one action per file. (1) “Touch Time” = Actual Employee Time (2) First-Pass Quality = Percentage that action is done without rework

  31. SBAExpress Loan ProcessBreakthrough Opportunity Size-Up Major Source of Waste/Opportunity for Improvementin “As Is” Process Estimated Cost of“As Is”Operation Estimated Cost ofValue-Streamed Operation PotentialSavings Servicing Actions 1502 Process 1-15 hrs 10 hrs 0.06 hrs 0 hrs 1.4 hrs x 11,000 loans= 15,400 hrs per year 9.96 hrs x 6,750 per process = 4,050 hrs per year  10 full time equivalents (2) Paper Guaranty Purchase 4 hrs 2 hrs 2 hrs X 11,000 Loans per year= 22,000 hrs per year  11 full time equivalents (backlog) (3) Non-Electronic Application Shipping 2.5 hrs .05 hrs 2.45 hrs x 8,275 = 20,274  11 full-time equivalents * Based on 1,950 Hrs per year = to one FTE

  32. SBAExpress Loan Process Breakthrough Vision for Change To This Tomorrow … From This Today … Paper files Cumbersome SOP SBA System Input Partially Functional GPTS People-Driven Analysis and Oversight SBA-Managed 1502 Reporting & Reconciliation Tracking, Shipping, Archiving & Storing Paper Files. Brick and Mortar Workspace Rule of Two/Three 50% Unilateral Actions “Expedited” Purchase Electronic files User-Friendly Guidelines Lender Input Functioning Electronic System of Record Proactive System-Driven Lender Oversight FTA-Managed 1502 Reporting & Reconciliation Electronic File Management Virtual Workspace Rule of Two. Lender Initiated 100% Unilateral Actions Delegated Authority (Except Purchase) No “Expedited” Purchase

  33. Single Entry System SBAExpress Loan Process Breakthrough Redesign Map Development of E-Tran & GPTS Digital Signatures Authority Shift in Reconciliation Responsibility • Lender Self Service • Rotating Cross-Functional Staff • Electronic Stoplights to Mitigate Risk • Document Management System Changes in SOP Changes in CFR Governance Interface with DFC for Payments Lender Changes: Reporting System (ITA) Contract Mod. For FTA Increased Unilateral Authority for Lenders Monitoring & Oversight QAR (15%)      Lean ProcessFlow Electronic Package Review & Recommendation Action (40%) Electronic loanapplication (Loan # Assignment) Payment Closeout and Referral to Treasury (10%) Disbursement Increase / Servicing Actions Electronic Purchase Package Submission Product Flow Customer Service (25%) Information Flow Legal Review (10%) FTE Required (%) Data Archival Systems (Multiple Backups) Electronic Systems Development Through Servicing and Beyond Document Management Functionality EnablingTools Web Enabled

  34. Loan Processing Leadership Jumpstart Event 504 Loan Process “As Is” to Breakthrough Analysis

  35. 6 8 7 5 4 3 2 1 504 Processing Value-Stream Map(Fully Delegated and Partially Delegated Lenders) Value-Added Activity Flow F2 Special Access to Mainframe Allowed F3 Reviewed by SBA During Oversight 1 F1 Lender Assigned to 1 of 2 Groups Based on Risk Based Analysis with Commensurate Authority Fully Delegated-Conduct own Servicing Consequences: Non-Renewal of PLP Territorial Consideration P4 Delegated Authority to Execute Service Documents P3 Finance/Legal/ Approval Review “Rule of 2” P2 Submit Action Request on “Standard” Form P1 Partially Delegated-Standard Service Servicing Process Flow Today CDC Sends all Docs to CLSC for Execution SBA Signature & Send Back to CDC Loan Officer Transmits Approval to CDC Loan Officer Review and Recommendation SBA Reviews all Docs Receive Servicing Action Approval Request from CDC Completed/ Compliant Servicing Account Legal Review CDCs Not Using Standard Forms Program Issues Being Reviewed by Legal Not Giving CDC Delegated Authority to Execute Shipping Docs Back to CDC CDCs Making Unnecessary Servicing/Requests Evaluation Request and Not Actual Action CDCs Not Sending Forms in via Preferred Method (Email) Areas of Waste

  36. Asset Recovery Process – Preferred Lender“As Is” vs. Value-Streamed Efficiency Comparison Est. “Touch Time”1 Full/Partial Deleg. Est.First-PassQuality (2) Est.First-PassQuality (2) Est. “Touch Time”1 “As Is” Process Value-Stream Process • Receive Servicing Action & Assign to LO • Receive Servicing Action & Review by Loan Specialist 4 100% 99% 0/1 2 • Legal Center for Review 0/1 98% • Legal Review 98.9% 98% .5 99% • Approval to CDC 0/1 • Approval to CDC • CDC Sends all Docs Back to SBA 99.995% .5 • SBA Signature & Send Back to CDC 100% 3 0 hrs – Full Deleg. 3 hrs – Partial Deleg. 96% 10 hrs TOTALS 96% TOTALS * Based on one action per file. (1) “Touch Time” = Actual Employee Time (2) First-Pass Quality = Percentage that action is done without rework

  37. 504 Loan ProcessBreakthrough Opportunity Size-Up Major Source of Waste/Opportunity for Improvementin “As Is” Process Estimated Cost of“As Is”Operation Estimated Cost ofValue-Streamed Operation PotentialSavings (1) Redundant File Room Pulls 4,000 pulls 2,000 pulls 0.08 hrs x 2,000 loans= 160 hrs per year 0.25 hrs x 2,000 loans= 500 hrs per year  1 full time equivalents (2) Unnecessary CDC Actions and Delegated Authority 10 hrs 0 hrs 10 hrs X 1,600 Loans per year= 16,000 hrs per year  8 full time equivalents * Based on 1,950 Hrs per year = to one FTE

  38. 504 Loan Process Breakthrough Vision for Change To This Tomorrow … From This Today … Treat CDCs as if “One Size Fits All” Paper Loan Files Paper Requests Permitted CDCs Allowed to use their own Forms Limited Training No Action Tracking Web site Complex Product SBA Signs all Principal Financial Documents Risk-Based Approach Electronic Data and Loan Files Electronic Requests Required Require Use of SBA Forms with Electronic Signatures Sufficient Proactive Training of CDCs (and others) Action Tracking Web site for Lenders Simple Products CDC Signs all Principal Financial Documents under Delegated Authority

  39. Create Risk Assignment Tools or Formula for Database 504 Loan Process Breakthrough Redesign Map Updated/New SOP Policy Consistent with the Process Flow Below Enhanced Oversight for Servicing Actions Governance F3 CDC Completes all Servicing Actions and Updates Electronically F2 CDC Inputs Information Electronically F1 FullyDelegated CDCs Rated1&2 1 SBA Assigns Risk Rating to Each CDC Lean ProcessFlow F2CDC Takes Action Consistent with Approval & Updates Electronic System P2 CDC Inputs Information Electronically F2SBA Analyzes & Transmits Electronic Approval F2CDC Submits Servicing Requests Partially Delegated P1 CDCs Rated 3,4&5 EnablingTools Create Electronic System Change the Change Process

  40. Loan Processing Leadership Jumpstart Event Asset Recovery Process “As Is” to Breakthrough Analysis

  41. 5 7 3 8 4 6 2 5 1 10 1 2 3 4 9 Asset Recovery Value-Stream Map (Page 1) Value-Added Activity Flow 7 8 5 6 4 1 3 2 Standardize Transcript. Complete Package. Give Priority Risk Based Rule of 2 (Liquidation Only) Receive Lender Advice/PDK on Website Risk Based Charge Off Review Risk Based Purchase Review Train Lenders Merit in Proposal Legal Fee Threshold ($15,000) 1 Day Mainframe (Input/Load) End-to-End Process Flow Today 3 Notify Lender with SBA Express Purchase Kit Review Litigation/ Liquidation Plan Deficiency Settlement Explored Liquidation Review/ Charge Off Lender Advice on Liquidation Purchase Review/ Decision Purchase Request Data Entry/ In Processing Close File Liquidation Oversight-Actions Redundant SOPs Rule of 3(Litigation Only) Duplicate Data Entry Review of Too Many Actions Duplicate Lender Notifications Manual Status Responses Dual Approval (into liquidation) Herndon Over $5,000 in Legal Fees Sent to DO for Review Risk-Based Rule of 3 Redundant Information to Lender Mainframe Activities Take too Long Incomplete Plan Package 504 Debenture Purchase Prepare 504 Liquidation Plan Notice of Delinquent Debenture Liquidate Loan Areas of Waste

  42. 8 7 6 9 Asset Recovery Value-Stream Map (Page 2) Value-Added Activity Flow End-to-End Process Flow Today Same Review for High/Low Dollar Cases (exc. $10,000) Incomplete Package (Compromise) Incomplete Purchase Packages Lack of Information for Wrap Up Pre-Purchase Stage Review Inconsistencies of Purchase Reviews Proposals Without Merit Re-reviews Time Automatic System Time-Out No Standard Transcript of Account Areas of Waste

  43. Asset Recovery Process “As Is” vs. Value-Streamed Efficiency Analysis (1) “Touch Time” = Actual Employee Time (2) First-Pass Quality = Percentage that action is done without rework

  44. Asset Recovery ProcessBreakthrough Opportunity Size-Up Major Source of Waste/Opportunity for Improvementin “As Is” Process Estimated Cost of“As Is”Operation Estimated Cost ofValue-Streamed Operation PotentialSavings (1) In House – Eliminate Multiple Review-Go to Single Pass Review 62 hrs 36 hrs 26 hrs x 4,500 loans= 117,000 hrs per year  60 full time equivalents (2) Out House >0 44 36 hrs X 500 Loans per year= 18,000 hrs per year  9 full time equivalents * Based on 1,950 Hrs per year = to one FTE

  45. Asset Recovery Process Breakthrough Vision for Change To This Tomorrow … From This Today … Treating all lenders the same when it comes to recovery Multiple data systems. Inaccurate Too many review stops Too much paper Non-standard transcripts (paper) Rule of 3 Reviews Partial Web-based Lender training by SBA staff Inconsistent guidance and response Ineffective 1502 lender reporting 100% reviews Full HQ process of repairs Risk grade lenders relative to work quality. Empower top lenders to process their purchases online Integrated user-friendly systems Consolidated oversight review Shift to electronic processing Standard electronic/on-line Transcript of Account Rule of 2 Reviews - where appropriate Full Web-based, imaging and E-Tran technologies Lender training Website Clear and concise guidelines, rewards, and consequences FTA corrects all 1502 errors Risk-based recovery review and charge-off reviews Delegate repair authority to Centers

  46. Asset Recovery ProcessBreakthrough Redesign Map Regulation-Litigation Criteria Regulation/SOP Partial Denials • Recovery does not equal liquidation • Review Once! • “If it does not fit, we do not submit.” Quality Assurance Reviews (Post Purchase / Post Charge-Off SOP – Risk-Based Governance Center Procedures Rewards & Consequences SOP – Rule of 2 Approved        Lean ProcessFlow Lender Requests Guaranty Payment Criteria-based Litigation Review Charge-Off (As Required) SBA Review Lender Notifies SBA Payment Issued Close File Disapproved Negotiate with Lender Empower Top Lenders to Process Purchases On-Line (Risk-based Purchases) Sampling Based on Lender Rating Web Interface Electronic Files Transfer Entire 1502 Resposibility to FTA EnablingTools Web-based Training Electronic Transcripts Integrated User-Friendly System

  47. Loan Processing Leadership Jumpstart Event Summary Productivity Gain Projection

  48. Loan ProcessingProductivity Gain Projection

  49. Loan Processing Leadership Jumpstart Event Rapid Improvement Campaign I Action Plan

  50. Rapid Improvement Campaign IOverview Meet as Requested by Campaign Board CampaignExecutive Sponsors • Preston, Galvan, Hager, Tasker, Pappas, Main, Liu, OGC, (OIG as required) EXECUTIVESUPPORT • Hager, Tasker, Liu, Miller, Hooper, Hammersley, Blewett, McCaghey, Stiner, Taylor, Pucci, Ballenger Meets Weekly CampaignBoard RAPIDACTIONTEAMS 7(a) SBAExpress 504 AssetRecovery TechnologySupport PolicySupport LEADERSHIPDECISIONPROJECTS 7(a) SBAExpress 504 AssetRecovery TechnologySupport PolicySupport

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