This Issue Contains: * Life in the SBA Industry is Great, But Stay Engaged * "Release and re-file?" * Newly Redesigned

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1 1 of 6 2/10/ :13 AM January 2015 This Issue Contains: * Life in the SBA Industry is Great, But Stay Engaged * "Release and re-file?" * Newly Redesigned In Focus is published by NAGGL, Inc. All rights in letters and unsolicited editorial or graphic material will be treated as unconditionally assigned for publication and copyright purposes and subject to NAGGL's editorial comment. All rights reserved. NAGGL has been experiencing severe problems with our current website. We are within a couple of weeks of launching an entirely new association management software solution, including a modern community-based website that will require members to login to take advantage of many great features (online registration, instant messaging with other members, sharing news, etc.). Until that time, believe me, we understand the frustration you may be feeling! Online event registration is not currently working, so please use the "old-fashioned" print-a-form and fax it in to or feel free to call if you will register using a credit card. Our number is Any NAGGL staff can assist you. Thank you for your understanding. Follow these links to learn about your fellow members and increase your networking sphere! New Members > Please take a minute to welcome our 5 newest member institutions! Member Anniversaries > Congratulations to Community Bank, Evergreen Business Capital, Massachusetts Business Development Corporation, Spectrum Financial Network, and Webster Bank on celebrating their 20th anniversary with NAGGL. Member Success > Share your success stories with NAGGL > Member News >

2 2 of 6 2/10/ :13 AM From the Chair: Life in the SBA Industry is Great, But Stay Engaged Larry Conley JPMorgan Chase NAGGL Chair I am honored and thrilled to be serving as your Chairman for the next three years. Lynn Ozer (Susquehanna Bank) has set the bar high during her term as Chair. Lynn represented NAGGL's membership professionally and knowledgeably, and has further developed its relationships on the Hill and within the agency. There were many times that Lynn jumped on the train on very short notice to represent us at very important meetings. Thank you, Lynn, for all you have done for us! There has never been a better time to serve the NAGGL membership and the SBA industry. Since the Great Recession, our industry has enjoyed a lengthy run of success. We have many things to be thankful for: * Fantastic growth in loan approvals over the last five years * Adequate authorization levels leading to no lending shutdown, especially in FY 2014 * A zero subsidy 7(a) program * A President that not supports and promotes SBA * Strong SBA employees and political appointees that work well with the industry and are committed to further improvements to the SBA program * Record attendance at NAGGL conferences and educational offerings * Talented and experienced NAGGL staff We can't just assume that all these things will continue. We must look to the future and make preparations in order to assure the future of this great industry. Your personal involvement is critical to continue the growth and success of our industry. Meeting Mission: One of the great things about the SBA industry is helping diverse small businesses start or grow in every community in the country. This is core to SBA's mission. We all must take steps to meet this mission and assure that the public is aware of our successes: * All lenders should focus on originating loans -- both big and small -- to maximize the variety of small businesses served. * NAGGL members need to increase the success stories turned into the association. We need these stories to show the benefits of SBA lending to the nation. The public's perception of our program is based on stories they hear about SBA. We want them to hear about our successes. NAGGL has templates available and regularly offers webinars (that are even recorded in case you miss them!). Stories should be sent to info@naggl.org. SBA ONE: SBA lending must continue to be simplified and streamlined. SBA is trying to simplify the program with the development and pending launch of SBA ONE. We must all commit to implementing SBA ONE in our institutions. Use of SBA ONE will assure cost effective origination of loans of all sizes, causing SBA loans to become an even more significant portion of overall small business lending. This in turn will lead to more political stability for the SBA industry.

3 NAGGL In Focus] Message from the Chair, "Release and re-file?", and... of 6 2/10/ :13 AM Increased partnership with other financial advocates: We must further develop cooperative relationships with those groups who share our common interest to develop a politically stable environment for the 7(a) program. The recent addition of Kristen Granchelli to the NAGGL staff gives us huge opportunity to grow our relationships in Washington, DC, where she resides. However, we all need to engage on this front. When out institutions are involved with other trade associations, chambers, etc., we need to let them know how important SBA lending is to small businesses. Increased member involvement: NAGGL involvement is the best way to grow within the industry and in turn to help the industry grow. NAGGL conferences and educational offerings are a wonderful way to increase your knowledge and your contacts. The NAGGL staff and board of directors are constantly looking for additional ways to interact and assist its members. Please take advantage of these opportunities. In summary, "the ride has been great, but let's not fall off our horses!" This is not a time to get complacent. Let's look to the future and continue to strengthen the foundation of this industry. Good luck to all of you this year! Larry Member Questions: HOW to Submit your Technical 7(a) Lending Questions to NAGGL NAGGL members receive the benefit of posing their technical questions about 7(a) lending to the association's cadre of experts. However, the manner in which a question is submitted is critical to ensuring a response. PLEASE use either the naggl.org 'Contact Us' form, selecting 'SBA Lending Questions' from the pull-down menu, or technical inquiries directly to info@naggl.org. Both methods deliver your question to a monitored inbox & NAGGL's internal process handles question distribution to the appropriate person. Sending an directly to an individual employee does NOT guarantee that your burning technical question is responded to in a timely fashion. All tracking of "encounters" (our lingo for technical questions) is done through info@naggl.org so submission to this address will expedite the process. Thank you. Member Service: The Newly Redesigned naggl.org NAGGL is excited to announce our soon-to-be launched entirely redesigned website at The new site will have a clean, updated look; improved navigation; and expanded functionality: * Pay membership dues online... you will be automatically reminded when your expiration date approaches and sent and with a link for payment * Member-only access to... SBA Policy Notices, 7(a) Gross Loans, Top Lenders List, Loan Production, In Focus, News Flash, etc.

4 4 of 6 2/10/ :13 AM * Search the member-only directory * Easily search for many categories of service providers * Easily maintain your own profile - add as much professional and personal information as you want... or only the required minimum * Members of Record will manage their rosters with a click of the mouse * Reset your password or request your username in real time * Register online for any NAGGL event * Print off your receipt for any event you attend * Specify which NAGGL e-communcations you wish to receive * Explore our Calendar of Events * And much more will be added in the future - tracking of diploma course credit earned, private groups for committees, a new job bank, forums Watch your inbox! In late January you'll receive an from NAGGL with instructions on how to activate your account and complete your member profile. Get Connected. NAGGL's updated online presence is a significant step forward for our organization. We invite you to help us make a timely, engaging place for members to share and connect. Unconventional Wisdom: "Release and re-file?" Mike Shepherd NAGGL Instructor since 2007 If you have been in SBA lending long enough, you have definitely gotten "the call". A frantic customer calls stating they are closing on their home mortgage refinance tomorrow and therefore the bank "has to" release and re-file the subordinate mortgage that was filed to secure a 7(a) loan. In order to meet SBA collateral requirements on larger loans, the SBA lender must often secure 7(a) loans with the available equity in a borrower's primary residence. Although the process has now changed to allow liens to be taken only up to the amount of the collateral shortfall, historically banks typically filed mortgages in the full amount of the 7(a) loan, and this can cause an issue with the residential mortgage loan underwriter. For most mortgage programs (Fannie and Freddie), the total amount of mortgages on the subject property cannot exceed the value of the property. So, for example, let's say that a small business has a $1,000,000 7(a) loan and the principal owns a $300,000 home with a $150,000 first mortgage. Recording the $1,000,000 mortgage to secure the 7(a) loan makes it impossible for the homeowner to refinance its first mortgage since the total LTV limitations imposed by Fannie and Freddie would be breached.

5 NAGGL In Focus] Message from the Chair, "Release and re-file?", and... of 6 2/10/ :13 AM This problem typically does not arise until days before a residential mortgage refinancing closing when the title search reveals the mortgage recorded by the SBA lender. Customers occasionally suffer from mortgage amnesia when seeking to refinance an existing home mortgage and completing that application. In order to close the refinancing transaction, the mortgage loan officer often suggests that the 7(a) lender simply release its mortgage on the residence and then re-file it after the new mortgage is recorded. The typical 7(a) lender's immediate response is to offer to subordinate; however, that request will be rejected by the mortgage lender since it does not satisfy the total LTV limitations of Fannie and Freddie. While 7(a) lenders strive to keep their customers happy, it is important to consider several factors before agreeing to accommodate a mortgage officer's subordination request: * Will the new mortgage create lien perfection issues? In many jurisdictions you cannot simply re-record a mortgage that has been released. Is a new mortgage dated after the SBA Note valid? * What is the consideration for the new mortgage? When a mortgage is signed at the same time as a Note, consideration is clear. But, consideration for subsequent mortgages typically requires a deeper thought process. * Do we have execution risk? We all spend time perfecting our processes for lien perfection at closing time, but how do we ensure our mortgage will be recorded perhaps weeks later after the new first mortgage recordation. * Do we have reputation risk by representing to Fannie and Freddie that our mortgage will be released when our intent is to ultimately re-file the mortgage? Some banks' counsels view this situation as tantamount to an attempt to defraud the federal government. Be aware, also, that many times 7(a) lenders are dealing with mortgage originators, rather than the underwriters who are responsible for ensuring compliance with mortgage program requirements. While I am not an attorney, I played one on TV. Just kidding - these issues should be addressed by qualified counsel familiar with local law. At stake is a possible repair to a bank's loan guarantee if the required collateral position on a 7(a) loan was not maintained. In the final analysis, if a lender ultimately concludes that it can't accommodate the request for a release and re-file, there are a few other options: * Is there a loan product available to the borrower that does not have the total LTV requirements? * Can we simply release the mortgage for consideration, paying down the 7(a) loan or escrowing funds as additional collateral? * Are there other programs such as the Home Affordable Refinance Program "HARP" that don't have the total LTV restrictions? [Editor note: Lenders are reminded that, when they are considering any action that will modify an existing mortgage or deed of trust securing a 7(a) loan, they also must fully comply with the requirements set out in SOP 50 57, especially Chapter 8, Modification of Collateral Requirements.] In Focus -- January Volume 31, Issue 1 National Association of Government Guaranteed Lenders, Inc. 2015, NAGGL, Inc. In Focus is published by NAGGL, Inc. All rights in letters and unsolicited editorial or graphic material will be treated as unconditionally assigned for publication and copyright purposes and subject to NAGGL's editorial comment. All rights reserved. Nothing may be reprinted in whole or part without written permission from NAGGL. NAGGL 215 East 9th Avenue Stillwater, OK