Court filing
Interim Report No. 6: MSLP Losses Surge to $572M as Principal Payments Hit (SIGPR-A-23-002-6)
Record facts
| Court | Special Inspector General for Pandemic Recovery |
|---|---|
| Filed | 2024-03-05 |
Summary
Interim report SIGPR-A-23-002-6, dated March 5, 2024, from the Special Inspector General for Pandemic Recovery (SIGPR) to Treasury's Chief Program Officer, updating data on Main Street Lending Program (MSLP) loan losses gathered for audit A-23-002. The report states that 319 lender banks issued 1,830 MSLP loans worth approximately $17.5 billion, backed by a $16.6 billion equity investment by Treasury, and that initial 15 percent principal payments came due between July 2023 and January 2024. It reports losses rising from $164 million on 43 loans as of July 31, 2023 to $572 million on 82 loans as of January 31, 2024, with 28 of those loans under investigation for suspected fraud. It adds that SIGPR is due to sunset in March 2025 and had 37 employees as of February 29, 2024, and says the memo requires no further action from management.
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SIGPR-A-23-002-6
Interim Report: Audit of the Effects
the Main Street Lending Program’s
Loan Losses Have on Treasury’s
Investment in the Program
Report Number SIGPR-A-23-002-6
March 5, 2024
Office of the Special Inspector General for
Pandemic Recovery
Office of Audits
SIGPR-A-23-002-6
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Office of the Special Inspector General for Pandemic Recovery
March 5, 2024
TO:
Jessica Milano
Chief Program Officer
U.S. Department of the Treasury
FROM:
Theodore R. Stehney
Assistant Inspector General for Auditing
Special Inspector General for Pandemic Recovery (SIGPR)
SUBJECT:
Interim Report: Audit of the Effects the Main Street Lending
Program’s Loan Losses Have on Treasury’s Investment in the
Program A-23-002-6
The purpose of this interim report is to provide information about data we are collecting
on the performance of Main Street Lending Program (MSLP) loans. We are collecting and
reviewing this information as part of our Audit of the Effects the Main Street Lending
Program’s Loan Losses Have on Treasury’s Investment in the Program (A-23-002). This
is an update of Interim Report Number A-23-002-5, issued on November 7, 2023.
Our November 7, 2023 interim report covered increases in MSLP loan losses as the
borrowers’ initial principal payments started to become due. Now that all borrowers’ initial
principal payments have become due, we are providing an update to the MSLP loan loss
figures.
Background
On April 9, 2020, the Board of Governors of the Federal Reserve System and Secretary
of the Treasury announced the establishment of the MSLP under the authority of Section
13(3) of the Federal Reserve Act, with approval of the Secretary. In total, 319 lender
banks participated in the MSLP issuing 1,830 loans to small and medium sized
businesses. The total value of the loans issued was approximately $17.5 billion. The
Federal Reserve Bank of Boston, which manages the program, set up a Special Purpose
Vehicle (SPV) to purchase 95 percent of participations in MSLP loans from lender banks.
These purchases were backed by a $16.6 billion equity investment by the Department of
the Treasury (Treasury). The lender banks retain the remaining 5 percent of the risk
associated with making a loan.
Payment terms for MSLP loans are for five years. No payments were due in the first year.
After the first year of the loan, interest payments became due in accordance with the loan
agreement. No principal was due in the first or second year of the loan. The loans are
amortized over the remaining term of the loan with 15 percent of principal due at the end
of year three, 15 percent due at the end of year four, and a balloon payment of 70 percent
at the end of year five.
SIGPR-A-23-002-6
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Office of the Special Inspector General for Pandemic Recovery
All MSLP loans were issued between July 2020 and January 2021. Therefore, interest
payments were the only payments due through the end of June 2023. The initial 15
percent principal payments became due for the earliest MSLP loans in July 2023, and
became due for all loans by January 2024.
Loan Losses Increased as Initial Principal Payments Became Due
MSLP loan loss figures increased significantly once initial principal payments came due
on the loans. The initial 15 percent principal payment became due on MSLP loans in
2023, three years after loan issuance. All MSLP loans were issued between July 2020
and January 2021, meaning all initial principal payments became due between July 2023
and January 2024.
As of July 31, 2023, 43 MSLP loans had been declared a loss, at a value of $164 million.
In the six months between July 31, 2023 and January 31, 2024, the Federal Reserve
charged off an additional 39 MSLP loans, and the total losses increased to $572 million.
This represents a six month increase of over $400 million. See Figure 1.
Figure 1 – MSLP Loan Loss Amounts Between July 2023 and January 2024
Reporting Date
MSLP Loan Losses
07/31/2023
$164,000,000
08/31/2023
$210,000,000
09/30/2023
$257,000,000
10/31/2023
$301,000,000
11/30/2023
$359,000,000
12/31/2024
$564,000,000
01/31/2024
$572,000,000
The Federal Reserve Board issues Periodic Reports each month to update its outstanding
lending facilities authorized by the Board under Section 13(3) of the Federal Reserve Act.
As part of these reports, the Board provides updates on the amount of outstanding MSLP
loans, the amount of actual loan losses recognized, and the allowance for loan losses in
the MSLP. The numbers in Figure 1 represent the MSLP loss figures the Board reported
in its Periodic Reports covering the period when all borrowers’ initial principal payment
became due.
Suspected Fraud Investigations
Several loans that have been declared a loss by the Federal Reserve Board are under
investigation for suspected fraud on the part of the borrower. As of January 31, 2023, 82
loans comprise the $572 million in losses. Of the 82 loans that have been declared a loss
by the Federal Reserve, 28 loans are or were under investigation for suspected fraud.
SIGPR continues to review the 1,018 outstanding MSLP loans (with Federal Reserve
participations of over $7.5 billion) for suspected fraud, waste, and abuse.
SIGPR-A-23-002-6
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Office of the Special Inspector General for Pandemic Recovery
Conclusion
MSLP loan losses have increased significantly during the period when the borrowers’
initial 15 percent principal payments became due. Loan losses increased by nearly 250
percent between July 2023 and January 2024, increasing from $164 million to $572
million. The number of loans declared a loss increased nearly 100 percent, from 43 to 82
loans.
A significant number of loans that were declared a loss by the Federal Reserve Board are
or were under investigation for suspected fraud. Of the 82 loans declared a loss as of
January 31, 2024, 28 of them (34 percent) are or were under investigation.
While there are over 1000 MSLP loans still outstanding representing over $7.5 billion in
Federal Reserve participations, SIGPR is due to sunset and cease operations in March
2025. As such, the office has begun efforts to downsize and prepare for the shutdown.
As of June 2023, before MSLP principal payments became due, SIGPR had 51 full time
employees. As of February 29, 2024, that number has decreased to 37. SIGPR will
continue to monitor MSLP loan losses and conduct investigations into suspected fraud as
resources allow.
Compliance Statement
In accordance with generally accepted government auditing standards (GAGAS), during
an audit, the auditors may provide interim reports to appropriate entity and oversight
officials. This communication is informational in nature and requires no further action
from management.
The related ongoing audit, when completed, will comply with GAGAS. The associated
performance audit report that will be issued in the future will incorporate the information
discussed in this report.
Audit Team
This audit is managed and conducted by the individuals listed below:
Kevin Gallagher
Audit Manager
Victor Martinez
Auditor-In-Charge
SIGPR-A-23-002-6
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Office of the Special Inspector General for Pandemic Recovery
Memorandum Distribution
Chief Program Officer – U.S. Department of the Treasury
Office of General Counsel – U.S. Department of the Treasury
Inspector General – Special Inspector General for Pandemic Recovery
Office of General Counsel – Special Inspector General for Pandemic Recovery
Federal Reserve Bank of Boston
Federal Reserve Board of GovernorsFile and source
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