10.6.14: Alleged Orlando Loan Originator Fraud Paralyzes USDA Secondary Market

Similar to the SBA 7(a) program, the U.S. Department of Agriculture (USDA) operates a loan guarantee program to promote business growth in rural areas of the country. The most popular program is the Business and Industry (B&I) Guaranteed Loan Program. The purpose of the B&I Guaranteed Loan Program is to improve, develop, or finance business, industry, and employment as well as improve the economic and environmental climates in rural communities.

The agency that operates the program provides 80% government guarantees for loans of $5 million or less, 70% for loans between $5 million and $10 million, and 60% for loans exceeding $10 million. These guarantees can be sold to investors in the secondary market at large premiums.

The program has been rocked by an alleged fraud perpetrated by a Florida loan originator, Nik Patel, who authorities say fraudulently sold $150 million in loans representing 25 transactions to an unidentified Milwaukee company. The FBI alleges he sold the loans as being guaranteed by the USDA when they were not. The FBI believes Patel submitted, among other things, fabricated loan guarantee forms falsely reflecting that the USDA guaranteed a portion of the loans’ principal amount.

Companies that invested in these loans have been scrambling to assess the damage as, ultimately, community banks that invest in the USDA-backed loan market could end up with enormous losses should no one be willing to make investors whole. A flurry of lawsuits will likely surround this situation and the lack of oversight that could have allowed it to happen.

 

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This entry was posted in CMBS, Commercial Mortgage-Backed Securities, Michael D. Sneden, News & Recent Closings, SBA 7(a), The Banker's Mortgage Conduit, USDA B&I, Valuexpress and tagged , , , , , , , . Bookmark the permalink.

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