SOW-FTA-7a-SOW-2019-OPSM-73351019C0009.docx

Fiscal Transfer Agent Services (FTA) for the SBA 7(a) Loan Guaranty Program - 2019 Performance-Based Statement of Work Office of Capital Access (OCA), Office of Performance and Systems Management (OPSM) 73351019C0009

SECTION 1 – OVERVIEWS

1-SBA Mission and Background The mission of the U.S. Small Business Administration (SBA/Agency) is to support the Nation’s economy by enabling the establishment and health of new and existing small businesses and by assisting in the economic recovery of communities during national disasters. Since 1953, SBA has carried out this mission by implementing targeted loan programs for small businesses, assisting businesses with obtaining government contracts, and providing loans during disasters.

The SBA 7(a) Loan Guaranty Program (7(a) program) is a federal lending program devoted to small business in the United States. Established under Section 7(a) of the Small Business Act of 1953, as amended, the program extends a full faith and credit guarantee of the U.S. Government to lenders that make small business loans pursuant to SBA rules and regulations.

This contract for the 7(a) Fiscal Transfer Agent (FTA) is critical to the SBA mission to improve access to capital for America’s small businesses. The 7(a) program is the largest SBA loan program. In Fiscal Year 2017, the portfolio included over 238,000 outstanding loans with 1,978 active lenders and a portfolio value totaling over $86 billion.

2-Contractual Overview This Performance-Based Statement of Work (SOW) details the functions required by the SBA for contractor services to facilitate the receipt and recordation of business borrowing loan payments representing the guaranteed interests of SBA loans made by lending institutions participating in the SBA 7(a) program. SBA requires the Contractor to provide for the continued delivery and administration by the SBA, in accordance with regulations issued by the Agency.

Pursuant to this SOW, Contractor will perform the functions of the FTA which include the following support functions to the Agency:

· Loan Administration;

· Loan and Portfolio Reporting;

· Secondary Market Activities;

· Lender Financing and Loan Securitizations;

· Information Technology Migration and Enhancement;

· Bonding Requirements;

· Auditing Requirements; and

· Transition Plan.

The Contractor shall either already have in place, or adopt and implement shortly after award an interactive, electronic fiscal and transfer payment system (System/Solution) that SBA can rely on to fulfill its 7(a) Secondary Market Guaranty (SMG) Program objectives. This System shall provide the SBA with audit-verifiable data as to the condition of all SBA 7(a) loan accounts held or managed by Contractor.

In addition, the Contractor shall provide for the continued delivery and administration of a primary and secondary market of individual and pool certificates guaranteed by the SBA, in accordance with regulations issued by the SBA.

Other services include the receipt and recordation of small business borrower loan payments representing the guaranteed interests of SBA loans made by lending institutions participating in the SBA 7(a) program.

The Contractor shall have complete and total responsibility for its own operations, and shall have the requisite staff and resources to properly manage this System according to SBA guidance, Federal Rules and Regulations, and best business and financial practices.

The Contractor’s sole compensation is the fees generated in accordance with Contractor’s Pricing Schedule.

3-Information Technology Migration and Enhancement In order to (1) clarify the interest of SBA’s ownership of the FTA suite of software and hardware used to meet the business requirements of this contract, (2) to enhance Office of Capital Access (OCA) Information Technology (IT) security position associated with the FTA Vendors activities, and (3) to clarify and simplify OCA’s IT investment reporting and oversite commitments, the Contractor shall assume the following defined responsibilities. Within one (1) year of award, the Contractor shall:

· Migrate and Convert all existing SBA FTA software to reside in and operate within SBA’s Capital Access Financial System (CAFS) existing architecture software and hardware;

· Build out and enhance the existing CAFS infrastructure and software suite, using only SBA approved products and tools, to fully satisfy the FTA IT business requirements ; and

· To the extent that the FTA IT requirements cannot be satisfied within the CAFS infrastructure and software suite, the Contractor will at its expense, acquire the necessary hardware and software to be installed within the CAFS infrastructure environment, and provide for installation, maintenance, upgrade, and support of all hardware and software to cover the life of this contract.

All software products (to include software used in development efforts), IT builds, Systems, Solutions, applications, hardware, software, licenses are to be licensed and registered 100% under SBA, clearly indicating that SBA 100% owns said items.

Any language contrary within the Statement of Work or related documents as to the requirements, scope, nature and purpose outlined in this section shall be subservient to this Section 1, paragraph 3.

4-The 7(a) Fiscal Transfer Agent (FTA) – Overview of Financial Servicing Duties and General Contractual Tasks Task One – Central Registry: Contractor shall serve as the central registry for owners of Guaranteed Interests (Registered Holders) in SBA 7(a) guaranteed loans and loan pools, and shall provide fiduciary services associated with securities custody, account administration, electronic execution, and transmission of investment securities to investors. Services shall also include safekeeping services for documents related to structured credit facilities and loan portfolio securitization instruments involving SBA 7(a) loans.

Task Two – Information Technology Functionality: Contractor shall facilitate the delivery of the SBA 7(a) program to stakeholders in the small business lending community using modern information technology.

Contractor shall deliver a question and answer-based electronic loan origination and document generation System or Solution that will seamlessly interface with SBA’s existing electronic data and document management capabilities within CAFS – and any system adopted during the life of this contract. As part of this System, Contractor shall develop and implement an electronic loan origination and document generation system that can be used by SBA and its lender participants to establish government guarantees linked to 7(a) loans made to qualified small business borrowers. Contractor shall provide expert and professional staffing for the successful operation of the System throughout the life of this contract, and during its complete and continuing integration with SBA’s internal electronic information systems.

The System shall be owned by the SBA to the extent necessary to transfer it to the next holder of the FTA contract following this contract. The System shall be developed in such a manner that SBA’s ownership is meaningful and useful beyond the life of this contract – with complete and useful documentation provided to the SBA in a manner that can be shared with any new holder of a contract for the FTA contract after the expiration of this contract’s Period of Performance (POP).

Definition – (“System” or “Solution”): An IT system or IT solution is a discrete set of information resources organized for the collection, processing, maintenance, use, sharing, dissemination, or disposition of information. In the context of this SOW, the System refers to the electronic and web-based software, written procedures, policies, protocols, and workflow tools developed to define and operate a best-in-class loan and electronic document and financial payments management system.

Task Three – Reports: Contractor shall provide a full suite of status report to the Contracting Officer’s Representative (COR). Status reports include, but are not limited to, the following:

· 1502 monthly dashboard reports;

· Raw data files, such as loan-level data, pool-level data, and portfolio-level data; and

· Other reports which detail the condition of the SBA 7(a) loan portfolio. These reports shall align with Office of Management and Budget (OMB) Circular A-129, OMB Circular A-123, and the Federal Credit Reform Act (FCRA) of 1990, as amended.

Task Four – FTA Services: Contractor shall execute the following services as FTA:

· Collection of loan payments with monthly reports on the performance of loans from over 4,300 lenders;

· Payments to the SMG loan pool investors;

· Maintenance of the SMG pool Master Reserve Fund;

· Generation of data files and reports to the 7(a) lenders on all loan collections and loan status; and

· Transmittal to SBA via CAFS interfaces and reports, all monthly anticipated payments, actual collections, loan status and lender reporting issues.

Contractor understands that a high fiduciary standard will be applied to all FTA services as these services are essential to all 7(a) third-party lender operations and to SBA oversight of this Government-backed lending program.

Both Contractor and each contractor-employee who works on the SOW shall sign a non-disclosure agreement (NDA).

In executing all tasks detailed in this contract, SBA will retain full discretion over actions taken by Contractor that may impact SBA borrowers, lenders, broker-dealers, and other market participants. Contractor shall seek prior SBA authorization on decisions involving Systems development, testing, and implementation, and shall comply with prevailing SBA guidance on decision documentation and disclosure. Contractor shall make available to SBA all tools and resources used to develop and operate the Systems, and shall have senior management and operations staff available to meet with SBA upon request.

SECTION 2 – SPECIFIC FTA PERFORMANCE REQUIREMENTS AND STANDARDS

5-Secondary Market Information Systems Contractor shall employ, at its own expense, a best-in-class, information systems application centered on securities custody, account administration, electronic execution and transmission of investment securities to investors. Contractor shall provide real-time market access to lenders, investors, and broker-dealers for an annual fee as detailed in the Pricing Schedule here in this contract, and shall have in place at the time of full contract assumption, a website platform that provides a full suite of data analytics on the condition of the SBA secondary market. Information on this website platform shall include general characteristics of the Guarantee Individual Certificates (GICs) sold and of each of the loan pools formed.

Definition: Guaranteed individual certificate (GIC): A guaranteed individual certificate issued to a Registered Holder in consideration for the purchase of the guarantee portion of an SBA loan. This certificate provides the holder with the full faith and credit guarantee by the Government of the guarantee interest in the event of a default on the underlying SBA 7(a) loan.

6-Central Registry for Certificates of Guaranteed Interests Contractor shall provide for central registration of all SBA Guaranteed Interest. See Attachment for information needed (in electronic format) with respect to each sale, including transfers.

7-Functions of Central Registrar Contractor shall perform the assigned duties as the central registrar for all SBA 7(a) Secondary Market securities. The Contractor shall:

· With respect to the initial issuance of a guaranteed interest, accept an SBA Form 1086 to effectuate such issuance signed by the lender and first purchaser or Registered Holder, together with the appropriate supporting documents as may be required by the SBA;

· Operate as a fiduciary to the Government in preparing, authenticating, and delivering certificates of guaranteed interest (Certificates) to Registered Holders or their representatives. Contractor shall enter upon each blank Certificate, signed in advance by SBA, the information required in such Certificate, following which a person, duly authorized by the Contractor, will date and sign the Certificate;

· Prepare the Certificates from (a) a completed and fully executed SBA Form 1086 in paper or electronic format as determined by SBA, with supporting documents, (b) if a Pool is to be formed, the SBA Form 1454, which is used to apply for the formation of a pool of SBA guaranteed interests, and (c) any other form as may be required by SBA;

· Utilize an authorized facsimile signature of the SBA Administrator and a facsimile of the SBA seal for Individual or Pool Guarantee Certificates;

· Rely on the accuracy of all documentation it receives in connection with the formation of a Pool, issuance of a Certificate, or transfer of any guaranteed interest, and shall have no liability whatsoever for any issuance or transfer, provided that action is taken in conformance with the requirements of this contract. Each subsequent transfer of a Certificate will be processed by the Contractor subject to and in accordance with Article 8 of the Uniform Commercial Code (U.C.C.) of the state in which the Contractor processes the transfer of Certificates;

· At its own expense, make available supplies of sequentially numbered Individual and Pool Certificates, which the Contractor shall retain and store in a secure facility. The SBA will provide an initial supply of 10,000 blank certificates along with the name and address of the forms supplier for reordering. Contractor or its employees may rely and act upon any written list, instruction, certification, authorization, certificate, or other written instrument believed by the Contractor or its employees in good faith to be genuine and to have been signed, countersigned, or executed by SBA, lender, purchaser, Registered Holder, Pool Certificate Holder, or an authorized official or approved agent of any of them, as the case may be; and

· Notwithstanding any provision herein to the contrary, Contractor may record any transfer of a Certificate which it believes in good faith to have been authorized by the transferor Registered Holder, or may refuse to record any such transfer if, in good faith, it deems such refusal necessary to avoid improper transfer, and may require as a condition of any such transfer the guaranty of the transferor Registered Holder.

8-Constant Prepayment Rates Contractor shall track Constant Prepayment Rates (CPRs) reported in the disclosure information that is included with each secondary market loan sale. A copy of a summary report of CPRs of similar maturities will be attached to each guaranteed interest certificate issued. The report will consist of summary information based on a rolling six (6) month basis.

9-Market Execution of Guaranteed Individual Certificates

· Contractor shall perform SBA Form 1086 Verification.

SBA lenders may elect to sell their interests in the guaranteed portion of the 7(a) loans they disburse through the SBA 7(a) SMG program. This secondary market includes broker dealers that make a market for the guaranteed interests, and investors designated as Registered Holders in the transaction. The SBA Form 1086, "Secondary Participation Guaranty Agreement" is an integral part of the SMG program. It is the formal agreement detailing the terms and conditions under which the lender will transfer payments from guaranteed principal portions of SBA 7(a) loans through the Contractor over to the Registered Holder. Accordingly, the Contractor shall fulfill all functions identified within the Form.

a. The SBA Form 1086 may be modified from time to time during the course of the contract. Contractor shall have an opportunity to comment on proposed changes in advance of implementation and the Contracting Officer (CO).

b. Contractor shall be responsible for completing the sales settlement process on loans presented for sale in accordance with Acceptable Quality Measure (AQM) listed in the Performance-Based Contract Administration schedule provided in this contract. Required activities to be performed in each settlement of an individual Certificate include verifying the accuracy of information provided by market participants presenting a Form 1086 for sales settlement. This verification shall include validation of lender representations on the Form 1086, and reconciling all discrepancies prior to settlement. Once all signatures have been received and verification of good funds affirmed, Contractor shall distribute sale proceeds as instructed in the transaction documents in accordance with the AQM detailed in the Performance-Based Contract Administration schedule contained in this contract.

c. Contractor shall be the primary point-of-contact for telephone, electronic, and written correspondence from market participants regarding questions surrounding execution of Guarantee Individual Certificates (GIC) sales settlements. Contractor shall seek authorization from the COR on actions to be taken by Contractor which are not expressly stated in this contract, or may be outside of routine, day-to-day processing of guarantee sales settlements.

d. Contractor shall process all lender requests for consent of the Registered Holder or pool investor arising from loan modifications affecting a loan sold in the secondary market. Requests shall be addressed in accordance with the AQM listed in the Performance-Based Contract Administration schedule provided in this contract.

e. With the written approval of the Registered Holder of an individual Guaranteed Interest, Contractor shall provide to the lender the Registered Holder's name, address, and telephone number as reflected in the records of the Contractor, if so requested by the lender. Such disclosure shall only be made for the limited purpose of accomplishing a reasonable servicing action or a willing buyer/willing seller repurchase.

f. Contractor shall monitor the delinquency status of all loans sold in the secondary market, and shall coordinate the SBA purchase of defaulted loans upon SBA notice. Contractor shall determine the amount of principal and interest due to the investor and fee amounts owed to the SBA at the time of guarantee purchase. Contractor shall have an audit-verifiable trail of purchase activity, and shall complete the execution of all purchase requests from SBA as detailed in the specific task listed in the Performance-Based Standards chart appearing elsewhere in this contract.

g. In the case of payment modification requests, Contractor shall forward the lender’s written request to the Registered Holder within one (1) business day of receipt. Contractor shall forward Registered Holder’s response to the lender within one (1) business day of receipt.

h. Contractor shall be responsible for reconciliation of account information. Contractor shall check all loan payments received to determine if the guaranteed portion of the lender's principal balance and paid-to-date information, as reported on SBA Form 1502, agree with Contractor’s information. If there is a principal discrepancy greater than $10.00 or a paid-to-date discrepancy greater than two (2) days, the lender will be notified by electronic mail or facsimile, and the payment reconciled.

i. Contractor shall reconcile loans via a transcript of account, listing the correct application of payments in question, and a corresponding letter of explanation. Should Contractor’s reconciliation of a loan result in a claim for funds from the Registered Holder or from the Lender, Contractor shall follow-up the transcript and letter with additional letters requesting funds until the funds are paid-in-full. If necessary, Contractor shall contact the appropriate SBA District Office and SBA Central Office for assistance in collecting the funds due.

j. At the time of receipt of final payment, Contractor shall reconcile the amount received with the principal balance on the books of the Contractor. If the principal discrepancy is less than $10.00, Contractor shall consider the loan to be paid-in-full.

· Contractor shall perform GIC Sales and Analytics. GIC sales shall be recorded by Contractor and made available for SBA inspection upon request. At a minimum, monthly sales settlement reports detailing guarantee amounts sold, amounts paid, premiums paid, net note rates, and lenders involved shall be formatted into an electronic report that is available to the COR.

This report shall be available to the COR within two (2) business days following calendar month end. Sales data shall also be assembled by Contractor for public release on a website devoted to providing analytical data on GIC sales activity.

Contractor shall work with the COR in the phase-in period of this contract on the components of this website, and shall provide all development, testing, and implementation of the application as scheduled out by Contractor to the COR within sixty (60) days of the contract award.

The Contractor shall make revisions to the application as authorized by the COR at no additional cost to the government.

10-Market Execution of Guaranteed Pool Certificates

· Contractor shall maintain a verifiable system for administering the SBA pooled 7(a) Loan Guaranty Program. Contractor shall demonstrate its experience in data and electronic payments with the SBA or with other similar government guaranty programs prior to any contract transition.

a. Contractor shall perform Form 1454 Verification. Contractor shall validate ownership of all guarantee certificates presented for pool formation, and shall reconcile all discrepancies prior to settlement.

b. Contractor shall perform duties related to pool formation, certificate exchange, and delivery. Contractor shall have primary responsibility for registering all pool formations, administering the surrender of related GICs, and completing the exchange and delivery of the SBA Pool Certificates to designated nominees as instructed by the SBA 7(a) Pool Assemblers.

c. Contractor shall perform duties related to pool administration and record-keeping. All fund flows derived from borrower payments made through SBA lenders to the FTA shall be captured, reported, and distributed to investor and other market participants as delineated in each pool formation document. Payment receipts and distributions shall be audit-verifiable and shall be compiled into an electronic payment system that provides relevant market information while maintaining all requisite Privacy Act protections.

d. All Guaranteed Pool Certificates (PCs) issued, transferred, or retired shall be cleared through the Contractor. Recording journals shall be available for review by the COR, or SBA internal and external audit representatives including the SBA Office of Inspector General (OIG).

Definition: Guaranteed Pool Certification (PC): A certificate interest in the guaranteed portion of a pool of SBA guaranteed loans acquired by pool investors. This certificate provides the holder with both a full faith and credit, and timely payment guarantee of the interests acquired by the Holder from the SBA 7(a) Pool Assemblers.

· Contractor shall produce program reports as needed by SBA. These reports include, but are not limited to the following:

a. MRF Security Transactions. A report detailing all security transactions executed and invested within the 7(a) Master Reserve Fund (“MRF”);

b. MRF CUSIP. A report listing the Committee on Uniform Securities Identification Procedures (“CUSIP”) numbers of the securities held within the MRF;

c. MRF Maturity Report. A report listing maturity dates of the securities held within the MRF;

d. MRF Coupon Rates. A report listing coupon rates of the securities held within the MRF;

e. MRF Cash Flow and Income. A report detailing cash and income generated from the securities held within the MRF;

f. MRF Pricing. A report detailing purchase price (or cost-basis), redemption price (if applicable) and the current market bid/ask prices of the securities held within the MRF;

g. MRF Balances. A report detailing the original principal amount (book value) and the current market value of the securities and cash held within the MRF;

h. MRF Realized Gain/Loss. A report detailing realized gains and/or losses of the securities held within the MRF;

i. Cohort Balances. A SMG report and MRF balance data by cohort provided to SBA’s Office of the Chief Financial Officer (“CFO”);

j. SBA_LOAN. Loan-level data, both the original and outstanding principal balances underlying SMG pools, provided to SBA. The SBA is to receive two (2) copies of this file – the first is produced at the end of the quarter (March 31, June 30, September 30, and December 31), and the second is produced on the 18th of the month following the end of the quarter;

k. SBA_CHECKS. Transaction-level data, loan payoffs, and principal payments of 20% or more of the outstanding principal balance for loans underlying the SMG pools. The file is produced on the 18th of the month following the end of the quarter;

l. SBA_HIST_UNDLYING. Transaction-level data, all historical loan payments for loans underlying SMG pools. The file is produced on the 18th of the month following the end of the quarter;

m. SBA_HIST_POOLS. Investor-level data, all historical SMG pool payments. The file is produced on the 18th of the month following the end of the quarter;

n. COHORT_BALANCES. Cohort-level data, historical daily total, and available MRF balances by cohort. The file is produced at the end of the quarter; and

o. TFMMMYY.csv (where MMMYY represents the month and year). Pool-level data files contain static information and outstanding pool balances. Each quarter SBA receives two (2) copies of this file – the first is produced at the end prior to the end of the quarter, the second is produced at the end of the month following the end of the quarter. For example, files are produced on August 31st and October 31st for the quarter ending on September 30th.

Definition – Master Reserve Fund (“MRF”): This fund provides for the timely payment of principal and interest on all pool certificate interests held by pool investors. Pool investors provide funding for the reserve through formation fees collected and remitted by the SBA 7(a) Pool Assemblers, and through a timing delay in the first investor payout. Guaranteed portions on SBA loan payments made by small business borrowers are passed through to investors that may hold fractional interests in SBA guaranteed pool certificates.

Definition – Committee on Uniform Securities Identification Procedures (CUSIP): A CUSIP number identifies most financial instruments, including: stocks of all registered U.S. and Canadian companies, commercial paper, and U.S. Government and municipal bonds.

11-Interest-Only Strip Securities In forming 7(a) SBA pool securities, the SBA 7(a) Pool Assemblers shall create excess interest-only securities from loans placed in an SBA pool. These instruments are referred to in the market as Confirmation of Originator Fee (COOF) securities.

Contractor shall maintain a registry of all COOF securities, issue receipts upon sale, and shall coordinate ownership transfers and make payments to holders of these securities when due. Servicing fees the Contractor shall charge for servicing these securities are provided in the Pricing Schedule found elsewhere in this solicitation.

Contractor shall have the option to offer investors a consolidated pool security identified as a Receipt of Multiple Originator Fees (RMOF), but shall be prohibited from charging a fee other than a nominal setup fee for registration of the multiple COOFs.

12-Secondary Market Pool Reporting and Data Analytics

· Pool Certificate sales shall be recorded by Contractor and shall be made available for SBA inspection upon request. This information shall be made available on a web-based report application and shall be available to the COR and to the FTA Program Managers at no additional cost to the Government. At a minimum, information shall include monthly sales settlement information as follows:

a. Number of pools formed;

b. Amounts paid;

c. Type of pool security;

d. Identification of the Pool Assembler(s) that formed the pool;

e. The number of loan accounts and the amounts sold in the pool at settlement;

f. The current number of loan accounts outstanding and related guarantee balance;

g. The initial pool rate to the investor;

h. The reset period for the pool; and

i. The current pool rate to the investor.

This report shall be available to the COR within two (2) business days following calendar month end.

· Sales data shall also be assembled by the Contractor for public release on a website devoted to providing analytical data on SBA pool sales activity. Contractor shall work with the COR in the phase-in period of this contract on the components of this website, and shall provide all development, testing, and implementation of the application as scheduled out by Contractor to the COR within sixty (60) days of the contract award.

Contractor shall make revisions to the application as authorized by the COR at no additional cost to the Government. The Contractor shall receive fees for this service as provided in the Pricing Schedule found elsewhere in this solicitation.

13-The SBA Master Reserve Fund

· The SBA Master Reserve Fund (MRF) is a fiduciary function administered by the FTA. The balance of the MRF is invested in accordance to SBA policy, entirely in Treasury securities, Repos and MMKT funds. The MRF receives monthly payments from SBA 7(a) guarantied borrowers, and disburses monthly to 7(a) secondary market pool investors based on a schedule of amounts due. The SMG Program includes SBA’s guaranty of timely payment, as well as a default guaranty to 7(a) secondary market investors. The MRF supports the timely payment requirement of SBA pool securities in the SMG Program.

a. Contractor shall be responsible for recommending to the COR an investment advisor for the MRF. The identification of the investment advisor shall be made by the Contractor in its response to this solicitation.

b. Upon written notification from SBA of advisor selection, Contractor shall lead in the coordination of all payment and data flows with the investment advisor to ensure the proper transmittal and timely payments to SBA pool investors.

c. Investment advisor fees and expenses for managing the MRF shall be paid by the FTA on behalf of the SBA solely to the investment advisor and shall be established by separate written agreement between the investment advisor and SBA. Contractor shall receive no compensation for investment performance and services provided by the investment advisor to the MRF.

d. Contractor shall provide written policies and procedures on the functions performed by Contractor and the investment advisor related to the MRF within ninety (90) days of contract award. This guidance shall specify the roles and responsibilities of each party in the relationship, and clearly detail each party’s reporting requirement to the SBA.

e. Within ninety (90) days of SBA’s selection of the investment advisor, Contractor shall establish a secured, electronic payment connection with the investment advisor to:

i. Provide daily deposits of funds on pools settled within a calendar month;

ii. Support daily transaction activities associated with loan pool prepayments; and

iii. Execute the monthly request for demand disbursement of funds from the MRF to satisfy payment obligations owed to pool investors.

· Contractor shall be responsible for timely delivery, at no additional cost to the SBA, of the following:

a. Audited annual financial statements of the MRF within 90 days of investment advisor’s fiscal year-end; and

b. Release of all Statement on Standards for Attestation Engagements (“SSAE”) No. 16 Service Organizational Controls (“SOC”) Type 1 assessment reports from an independent financial auditor detailing the test results of the internal control environment existing in the investment advisor. These written reports shall be released unconditionally to SBA, no less than semi-annually.

14-The SBA Master Reserve Fund – Cohort Tracking Contractor shall account for the cash flows in the MRF at the “cohort” level. The term “cohort” refers to all pools formed during any given federal fiscal year period (October 1 through September 30). All pools formed prior to October 1, 2004 will constitute the FY04 cohort. For all other cohort years, the term “cohort” will be referred to as all pools formed during any given federal fiscal year period.

Contractor shall maintain cohort accounting in its accounting system and provide cohort variables in the following data items and be able to provide data to the COR at the loan and/or pool level as follows:

· Basic loan information (e.g. loan number, borrower name, address);

· Loan balances;

· Loan-level payment history;

· Trading factor reports; and

· Loan-level payoff history.

15-The SBA Master Reserve Fund – Investment Allocation Contractor shall track all loan and pool payment information at the loan and/or pool-level and allocate the investment earnings of the MRF by pool and cohorts. The allocation method shall produce results that are equivalent to the results that would be obtained if funds were invested separately for each cohort, and shall not make assumptions that could result in limitations on how investments are made. In particular, the allocation method must correctly handle the following conditions:

· When securities are purchased in one fiscal year and redeemed (or matured) in a subsequent fiscal year, the proceeds shall not be attributed to cohorts that were not yet in existence at the time of purchase;

· When securities are purchased, ownership shares shall be attributed to cohorts on the basis of their cash positions in the MRF at the time of purchase; and

· When a cohort has a negative position in the MRF (cumulative outflows to investors have exceeded cumulative inflows from loan payments plus earnings on investments), it shall pay interest to other cohorts at a rate equal to what they would have received in the absence of such borrowing.

16-The SBA Master Reserve Fund - Allocation Method Contractor shall implement the investment earnings allocation method described below. The method requires (a) the availability of close-of-business cash position of each cohort on a daily basis; and (b) that purchases and redemption of securities be treated as occurring at the close of business.

· Close-Out Transactions. When a cohort is extinguished, it is expected that there will be a residual cash position associated with it. Contractor shall track the residual cash position of each cohort until it receives disbursement instructions (for positive positions) or funding instructions (for negative positions) from the COR. Those instructions will detail the specific SBA financing account designated to receive such funds and the related wire instructions. If there is a residual cash shortfall in the fund balance, the COR will provide Contractor with written instructions on which financing account may be debited by the Contractor to make up the shortfall. Once extinguished, a cohort’s residual cash position is excluded from all future short-term and long-term investment allocations. All extinguished cohorts retain their established positions in long-term investments through the maturity of the affected long-term instruments. Investment earnings from these long-term instruments will be allocated to the extinguished cohorts through maturity. When all applicable instruments have matured, the final position of the cohort may be positive or negative. The final position will remain in the MRF pending instructions from the SBA.

· Other Transactions. For various small monetary transactions that impact the MRF either as income or expenses, the Contractor shall allocate expenses by cohort on an accrual basis and the expenses as the date cohort accounting commences cover trustee fees, investment management fees, and sub accounting fees. The cash position of the cohort will decrease when expenses are paid in subsequent months beyond the month in which the expense was incurred.

17-The SBA Master Reserve Fund – Transfer of Funds to SBA For the transfer of funds collected by Contractor and ultimately paid to SBA, Contractor shall send the SBA Finance Center a daily wire transfer of all funds owed to SBA. The daily wire shall consist of funds accumulating in Contractor’s demand deposit account from the following collection accounts to the extent that the account balance on a given day exceeds $5,000. When the total account balance is less than $5,000, the Contractor shall retain the funds until the $5,000 minimum amount is attained, but by no later than Thursday of each week, at which time the Contractor shall wire transfer all outstanding balances to the SBA Finance Center. The following are the relevant collection account and funds:

· Premiums on Sold Loans. A fee equal to percent of the portion of the sale price which is in excess of 110 percent of the outstanding principal amount of the portion of the loan guaranteed by the SBA;

· Subsidy Recoupment Fee on Sold Loans. Contractor shall separate these funds from the prepayment funds remitted by the lender;

· Pool Transfers and Certificate Redemptions. Contractor shall forward SBA’s portion of pool and individual certificate transfer fees as described in the Pricing Schedule;

· Late Penalty for Late Submission of the SBA Form 1502 Payments. Contractor shall separate the late payment funds owed to SBA from the payment funds received from the lender.

· Secondary Market Guarantee Fee. Contractor shall receive instruction from the COR on the assessment of a secondary market guarantee fee to be charged to investors of guaranteed loan pools. Contractor shall be responsible for the notice and collection of all fees assigned to each pooled security, and to report unpaid fee receivables to SBA on no less than a quarterly basis.

For the collection accounts and fees, Contractor shall use the SBA Business Account Classification codes to be supplied by the SBA Chief Financial Officer’s (CFO’s) office when including these funds in the daily wire.

Payments shall be timely, in accordance with SBA policy, in accordance with the best business practices of the financial industry, and conform to Federal law.

18-Loan Administration and Reporting Contractor shall serve as the primary hub for electronic lender loan payment reporting, and 7(a) and program fee collection and remittance. Contractor shall process all reported 7(a) and America’s Recovery Capital (“ARC”) loan payment activity within a monthly report cycle and shall provide SBA staff and lenders with 24/7 access to their report filings.

Definition: America’s Recovery Capital (ARC) loans: SBA Guaranteed loans made by SBA lender participants between February 19, 2009, and September 30, 2010. These loans were made for amounts not to exceed $35,000.00 with a 100% guarantee, and with SBA responsible for the borrower’s payment of interest to the lender on the loan.

The Contractor shall establish and/or enhance its own internal processes and quality assurance methodologies to validate the accuracy of all data, forms, and information collected by the FTA when compared against participating SBA lenders. In the event the FTA identifies a discrepancy in information during its quality control and quality assurance (QCQA) process, the FTA shall provide notification to the SBA lender that an issue exists with the lender report.

The Contractor shall implement a solution to enhance current SBA systems and day-to-day processes over SBA lender submissions, to ensure critical fields on all forms are accurate and complete.

At no additional cost to the Government, Contractor shall operate, maintain, and support systems within CAFS that accommodates all existing forms of SBA loan program delivery methods and payment formats (for example, monthly versus seasonal), term, and revolving loan transactions, secondary market sale and guarantee retention reporting, as well as all possible loan status designations and payment remittance methods.

The Contractor CAFS applications shall seamlessly interface to the SBA’s CAFS loan program management system.

Contractor shall have a full-time working staff presence at SBA headquarters in Washington, D.C. to handle the following lender loan reporting functions:

· Loan payment report intake and data verification;

· Loan exception reporting and reconciliation;

· Fee computation and payment processing;

· Fee receivable construction, lender notification and collection;

· Fee receivable report and fund transmission to SBA’s Denver Finance Center (“DFC”);

· Electronic user interface support and customer service including lender training;

· Full-time support for SBA Loan Program employees including SBA headquarters, Fiscal Program Operations, and SBA field office staff;

· Representation before SBA management in support of interdepartmental objectives and projects involving 7(a) lender loan reporting;

· Coordination of electronic loan information and systems security with SBA information technology specialists;

· Representation before government audit and examinations;

· Preparation and delivery of periodic reports on the condition of lender loan reporting; and

· Development and implementation of recommendations for action surrounding lender loan reporting improvements.

Contractor shall maintain proper insurance for these employees, including but not limited to, worker’s compensation, unemployment, and any other form of insurance the Contractor provides for employees at its own facilities. If considered by Contractor to be a best business practice, Contractor shall provide financial liability insurance for employees it considers to have a financial or fiduciary risk in the performance of contractual duties.

Contractor shall implement a web-based IT solution that has the following functionality:

· Tracks the completion of a loan application submission package;

· Integrates with SBA’s electronic lending system (ETRAN) which operates on a ColdFusion/Oracle/Java platform so that data does not have to be reentered;

· Organizes the loan package to support eligibility;

· Implements an IT solution that generates SBA forms and a complete loan package based on borrower/lender questionnaire answers;

· Generates the loan application package, closing/funding documentation, and credit worthiness documentation;

· Includes electronic signature capability that leverages encryption;

· Includes business intelligence to support eligibility filtering and decision making;

· Uses data inputs to generate the credit memorandum;

· Integrates with SBA’s loan authorization software/wizard;

· Integrates with a CAFS document management system and includes workflow to track the completeness of documents;

· Generates loan documents that are compliant with SBA operating procedures;

· Implements an IT solution that utilizes intuitive questions and answers to navigate the user who is completing SBA forms based on SBA rules and regulations;

· Includes processes so that any changes in the data fields used to generate the credit, packaging, or closing documents will result in an automatic change to those documents;

· Tracks and alerts the lender if any eligibility documents are missing;

· Includes workflow that tracks documents required at each stage of loan processing—such as, at time of loan approval, closing, and underwriting;

· Provides audit tracking of users that view or edit a record;

· Leverages software development best practices so that the software can be updated as there are changes to SBA loan programs and Standard Operating Procedures (“SOPs”);

· Integrates with CAFS to allow the creation and entry of the lender loan reporting data;

· Allows SBA personnel to access documents that should be maintained based on SOP requirements;

· Bases eligibility on a decision tree that considers the loan type, structure, and additional key eligibility criteria as defined in the SOP;

· Generates a credit memo and includes financial statement analysis tools based on standard industry trends;

· Provides workflow diagrams required to approve a loan package;

· Generates a closing checklist that identifies requirements for completing loan authorization;

· Provides an interface for lenders to track disbursement and settlement of loans;

· Alerts lenders about loans that are delinquent and may require workout;

· Supports multiple roles which include, but are not limited to, lender agent, lender management, borrowers, and administrators;

· Tracks loan collateral;

· Provides workflow diagrams to manage loan authorization agreement;

· Supports daily closing of all accounts; and

· Provides daily verification of fees paid and earned.

Contractor shall implement a document generation capability that can support the following requirements:

· uploading of forms including tax returns, income statement, balance sheets, credit memos, and franchise agreements;

· uploading of documents in Word, .pdf., and Excel formats; and

· integrate with the CAFS document management.

Contractor shall implement a solution that allows business rules/controls to be defined for validating a loan application based on SBA loan guaranty criteria.

Contractor shall implement a solution that provides functionality that includes:

· online support;

· proposal generation and budget prep;

· guarantee commitment documentation; and

· tracking of communication.

Contractor shall implement a solution to enable the loan purchasing process.

Contractor shall have an online training and support manual.

The Contractor shall implement a solution that allows the SBA to define the risk management metrics for tracking performance. The system shall also display the metrics using a dashboard.

Contractor shall implement a solution that packages loans and allows a user to submit the package using a “wet signature” or electronic signature.

Contractor shall implement a solution that prints a loan application and stores it in alternate formats (such as, pdf, Word).

Contractor shall implement a solution that tracks the following:

· loan disbursements;

· loan collateral;

· status of loan authorization agreements;

· loan denials and reason;

· credit review and comment, underwriter response, and approval;

· submitted and pending documentation;

· status of loan authorization agreement; and

· automated credit scoring.

Maintenance of Electronic Records. Contractor shall maintain the following loan and financial records electronically for as long as reasonably necessary (but in no event less than seven (7) years from the date of the last transaction) with respect to each Guaranteed Interest, and in no event, less than 7 years from the closing of the pool.

Contractor shall remit all fees that accompany submitted loan reports and that inure to the SBA as required by the Miscellaneous Receipts Act. This requirement applies to all sums collected daily by the Contractor that, when added to any prior balance, exceeds $5,000. Balances less than $5,000 may be held by the Contractor until such balance exceeds this dollar threshold, but, in all cases, the funds shall be remitted to SBA no later than one week from initial receipt.

Contractor shall maintain a record of the current outstanding balance and payment history for each Guaranteed Interest, pool, and pool certificate, and records of Certificates presented for transfer and last known address records of Registered Holders.

Contractor shall support identity Federation standards which include:

· Web services-based Federation which includes enabling the sharing of identity information between security domains; and

· Security Assertion Markup Language (SAML) 2.0 or the current standard.

The Internal Revenue Service (IRS) shall be the preferred identity provider.

19-Lender Financing and Loan Securitization Contractor shall enter into custodial agreements to safeguard the pledge of SBA loans in secured lending facilities and SBA loan-backed securitization transactions.

For lender financing transactions, Contractor, in its role as Bailee to the transaction, shall be responsible for (1) reviewing, recording, and verifying loan documents received, (2) establishing custody and control of documents in a secured facility, and (3) safeguarding release of pledged collateral documentation as instructed and agreed to by the Contractor in an executed Multi-Party Agreement with SBA.

For SBA loan securitization transactions, Contractor shall enter into custodial agreements for the purpose of safeguarding loans pledged in a loan pool securitization. Contractor shall review, record, and verify related loan documents received, and shall establish custody and control of documents in a secured facility as agreed to by Contractor in an executed SBA Multi-Party Agreement specific to each loan securitization.

Contractor shall verify loan pool construction, and if necessary, coordinate payment receipt and distribution of funds to investors.

Contactor shall issue to SBA loan pool securitization statements, including computed pool loss experience data, which shall be provided to the SBA and associated trustees on no less than a quarterly basis. This statement shall be sent to the COR within fifteen (15) days following each calendar quarter.

The Contractor shall uphold a fiduciary standard of duty and standard of care in its provision of service to the parties identified in the transaction.

In providing these services, the Contractor shall assume all financial risks associated with actions or omissions that adversely impact the parties to the transaction, including the SBA.

20-Technology Contractor’s IT solution for providing and supplementing its services shall be fully-compatible and compliant with SBA’s CAFS software and hardware architecture and able to provide data in real time. The solution shall allow daily, close-of-business balancing of all relevant accounts. The solution shall allow a daily verification of fees earned and paid, and the data accuracy.

The current FTA vendor maintains,…