FHA 232 LEAN Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN

Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Previous E-Newsletters/U.S. Department of Housing and Urban Development (HUD)

The Link to FHA 232 LEAN news letters and program changes

Previous E-Newsletters/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Letter

LOW INCOME HOUSING TAX CREDITS AND SECTION 232 NEW CONSTRUCTION/SUBSTANTIAL REHABILITATION PROJECTS:

Provided the Firm Applications are submitted in a timely manner, HUD reserves the right to adjust its Other Queue to give preference to processing new construction and substantial rehabilitation Section 232’s that include Low Income Housing Tax Credits (LIHTC) to meet placed in service deadlines on specific projects.   We encourage lenders to submit the Firm Applications on these projects in such a manner that will allow as much time as possible for HUD to act on the applications – including reviewing whether our 2 Stage Firm Application process will provide for such.  

CHANGES TO OUR PROCEDURE FOR HANDLING SEASONING OF DEBT:

The April 10, 2009 Email Blast discussed our definition of Eligible Debt and the two and five year seasoning rules.  Although this language was silent on the date that the seasoning is based upon, we have consistently required that the two or five year period must have passed prior to the application being submitted (entering our queue).  Because of the length of time that projects are spending in our queues, we are changing how we will handle this.  Effective immediately, the two and five year time period will be based upon when a project is assigned to an OHP Underwriter (exits our queue).  Lenders may choose to submit a project prior to the seasoning period expiring, however, if the project reaches the top of the queue prior to the debt being properly seasoned, the project will be placed on hold.   Lenders submitting projects in such a manner must regularly monitor the project’s progression through the queue and contact a Workload Manager at HUD (prior to the project being assigned to an OHP Underwriter) if it becomes evident that the project will be assigned prior to the seasoning period expiring. 

REFUNDS OF HUD APPLICATION FEE:

We understand that HUD is no longer issuing refund checks  - all refunds are being handled by Direct Deposit.  To accommodate this procedure, when requesting refunds in the future, please use the attached document as a template for your letter requesting the refund.  This document will be posted to HUD.GOV in the future.

MANAGEMENT AGENT AND OPERATOR GRID:

Please see the attached grid.  This document addresses HUD’s closing document requirements for operators and management agents to ensure that HUD has a valid security and regulatory interest in the project assets of the healthcare facility.  Particularly of note, this grid addresses the document signing requirements of the operator and/or management agent for the operating lease, license, equipment, provider agreements, deposit accounts and facility repairs.  This document will be posted to “Sample Closing Documents” on HUD.GOV in the future.

STALE DATE ON PHASE I ENVIRONMENTAL REPORTS:

We have been asked numerous times in the past few months to waive the stale date on Phase I Environmental Reports – listed in the endnotes on our Checklists.  We have turned down all such requests as we are unable to waive this requirement. 

CLOSING QUEUE:

We will soon be posting our closing queues to HUD.GOV.  Until these are posted, please see the attached two spreadsheets, which list the projects in our closing queues.  Projects will be assigned from the top to bottom of the spreadsheets.  Currently we have three closing coordinators working on the non 223(a)(7) queue (one of these individuals concentrates on Insured Advances projects).

CLARIFICATION ON MINIMUM LEASE PAYMENTS:

During the closing of Section 232 loans, OHP and OGC have encountered confusion on the minimum lease payment required for closing documents and operating leases.  For the actual leases, we are requiring that the annual lease payment be calculated using a minium of a 1.05 coverage ratio - annual principal + annual interest + annual mortgage insurance premium + annual reserve for replacement deposit + annual property and liability insurance + annual property taxes times a multiplier of 1.05.  This minimum coverage level required for executed leases is different than the test measurement used in the 223 F Lender’s Narrative, which remains unchanged - it will continue at the 1.17 coverage level.

REVISED CONSTRUCTION SPECIFICATION TEMPLATE:

OHP will be following the revised construction specification template discussed in HUD Mortgagee Letter 2010-41 – see attached.  All Firm Applications submitted to HUD on or after April 25, 2011, must use the new CSI MasterFormat 2010.  Future revisions to our checklists and other documents posted to HUD.GOV will reflect this revised document. 

CHANGES TO OUR STANDARD DOCUMENTS:

Please do not change Lean Approved exhibits posted on HUD.GOV.  This includes, but is not limited to, submitting exhibits in MS Excel or QuattroPro when they are to be in original Word format, adding or subtracting fields of information in current documents, and changing language in Firm Commitments.  When these changes are made it takes Underwriters and Closing Coordinators extra time to identify and mitigate these unapproved changes and is contrary to the standardization required under Lean.  We will be following the February 19, 2010 Email Blast and requesting a revision to the Firm Application when this situation is present.

In addition, if a section of the Lender Narrative or an exhibit is not applicable to your project, please note that it is “not applicable” and explain why you believe this is not applicable.  No sections are to be left blank or deleted from the Template. Your cooperation with this request will help us process your application more quickly.

MARKET INTEREST RATE ABOVE RATE USED IN SECTION 223(A)(7) APPLICATIONS:

Given the recent rise in interest rates, interest rates proposed in applications under Lean Section 223(a)(7) may not longer be achievable.  Please advise your assigned OHP Underwriter if this is the case so you can work to ensure your application is consistently updated throughout to reflect a more accurate interest rate at the time of Firm Commitment issuance. For applications still in the queue that are no longer feasible due to interest rate hikes, lenders can opt to withdraw their application and have the application fee returned. 

Need to Reference Previous LEAN 232 Updates?

Previous E-Newsletters (Email Updates) can be found at:

http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration/healthcare_facilities/section_232/lean_processing_page/underwriting_guidance_home_page/previous_e_newsletters

Financing Nursing Homes And Assisted Living Facilities with the new LEAN Program

Many owners of nursing homes and assisted living projects have long preferred traditional bank lenders. However, the significant losses from the subprime meltdown—more than $500 Billion—have changed the rules and the ability of traditional lenders to finance loans. Most analysts project additional losses in the near future along with significant losses in automobile loans and credit card loans, which means conditions will become worse before they get better.

These losses force banks and financial institutions to seek capital to supplement their depleted base. Without a sufficient base, banks and financial institutions are unable to make new loans. Despite the infusion of cash from the Treasury, credit has not loosened. The projected size of current and future losses bring into question whether banks and financial institutions have the ability to raise the necessary additional capital and whether or not they will be making many loans in the near future.
The first type of loans that banks will cease making will be loans to nursing home and assisted living providers. Health care is a specialized market, and the number of banks willing or able to make these loans will diminish and the lending terms may become far more onerous. When Letters of Credit come due, banks will not have the ability to renew them.

Therefore, traditional, conventional financing in the near future is all but gone for practical purposes. Fortunately, FHA is rolling out their new LEAN program just as traditional bank and financial company financing is becoming more difficult. FHA recently reengineered its lending program for nursing homes and assisted living facilities by transferring the responsibility to the Office of Insured Health Care Facilities. This transfer has resulted in “THE LEAN PROGRAM,” FHA’s new way of doing business.
This new program addresses the most frequent complaints FHA lenders and facility owners have had with traditional FHA processing: the lengthy processing time, the inconsistent answers, and an inability to complete transactions in a consistently reasonable time frame. The new program promises the ability to close a transaction within thirty days of the day the lender files its application for mortgage insurance.
FHA now not only has a program that is—and always will be—available, offers fantastic terms, but also has the ability to deliver the financing with a rapid turn around, without the previous FHA headaches.

We have over 45 years experience dealing with FHA, and can help you through every step of the way. Each development is unique, of course, and we can help you determine your specific needs and determine the best way to achieve your objectives.


Please call or email us at your earliest convenience.

Very truly yours,

Charles E. Kendall
President
Kendall Realty Advisors