HUD/FHA’s Lean Section 232 Program

1. HUD/FHA’s Lean Section 232 Program Tim Gruenes Office of Insured Health Care Facilities Tim.Gruenes@hud.gov

2. HUD/FHA Insurance • FHA Approved Lender underwrites & provides mortgage/loan $’s. • FHA Insurance - if default/claim, HUD steps in and pays off lender • Acceptable risk for FHA Insurance Fund? • Not competitive process and no subsidy/grant provided by HUD

3. Basics of Section 232 • Housing for Frail Elderly: • Nursing Homes • Assisted Living Facilities • Board and Care • Can include up to 25% Independent Living Units • Can be more than 1 type of above • Uses of Loan Proceeds: • Purchase/Refinance – provided 3 + years old • New Construction/Substantial Rehabilitation • Combination of above

4. MAP to Lean Processing of 232’s • 232’s previously processed by Multifamily • Now processed by OIHCF

5. Timeline - MAP to Lean on 232’s Spring, 2008: Planning June, 2008: OIHCF Closed 1st Lean Loan – Beta Test July, 2008: Lender training on 232/223f in Seattle December, 2008: Lender training on all 232’s in Seattle December, 2008: Closed 2nd Lean Loan March 1, 2009: all new Section 232 loans must be processed Lean Projects began under MAP completed by MF.

6. Where Did Lean Come From? 1990 1996

7. 232 Basics

8. Maximum Loan Terms: • Existing: 35 years or 75% of Remaining Economic Life • New/SR: 40 years or 75% of REL • Competitive Interest Rates • On NC/SR, construction/perm loan all in one • On NC/SR, Davis Bacon wage rates required. • Annual audited financial statements required. • Monthly deposits to Replacement Reserves required • Possible assumption (TPA)

9. 232 Loan Sizing

10. Loan Sizing – Statute, Regs, MAP * On new construction mortgage not to exceed 90% of HUD Replacement Cost

11. For Lean Projects, Start here……………..

12. Benchmarks – 11/20/09 Email Blast * On new construction, mortgage not to exceed 90% of HUD Replacement Cost

13. Loan Sizing – Continued • Not-for-Profit Owners and Operators: To achieve the more liberal LTV benchmark, must demonstrate: • A successful operating track record • Significant project operating and management experience • A solid financial track record • If exceeding LTV’s on previous slide, need significant justification/mitigation of why low risk for HUD.

14. HUD.GOV www.hud.gov/healthcare

15. LEAN Section 232 Home Page Welcome to the home page for the Office of Insured Health Care Facilities’ Section 232 LEAN program. Our website contains information on "Underwriting Guidance" and "Loan Servicing Guidance" as well as a "General Overview of FHA Insurance and LEAN Section 232." Underwriting Guidance--Deals with situations where you will be placing a new FHA Insured Loan on the project. Loan Servicing Guidance--Deals with asset management activities of FHA-Insured Loans. General Overview of FHA Insurance and HUD’s LEAN Section 232 Program

16. Overview and Statistics

17. Lean Closings – Calendar Year

18. Queue Statistics • Queue = 124 Projects • Of these, currently 23 with Risk Assessments that passed

19. Average Days in Queue by Month Entered in Queue

20. Changes • Changes we’ve made in attempt to deal with shortage of staffing/overwelming demand: • Green Team: existing projects that pass Risk Assessment • Removed Preapplication process and implementing two step Firm process to replace

21. New Two Stage Process for New Construction & Sub-Rehab

22. In Lieu of Pre-Apps Option 1: Full Option 2: Staged • Full Firm Application (unchanged from current option) • Initial Submission • Final Submission

23. Staged Application Basics HUD Issues Commitment or Passes Closing

24. Initial Submission • FHA Application Fee – 0.3% of mortgage • If HUD elects NOT to continue with the loan, ½ of the application fee can be refunded. • If HUD issues a commitment, the Lender has 10 business days to decline the commitment and request a refund of ½ of the application fee. • Market Study / Appraisal / Environmental • Complete review and approval of Market and Value • Environmental review starts immediately • Same expiration time frames

25. Initial Submission • Mortgage Sized on Fair Market Value and Debt Service • Qualify Mortgagor / Operator / Management Agent • Full submission of exhibits (just like direct to firm) • Full HUD review • Final Submission permits for modifications • Limited Plans • Minimum submission similar to MAP Pre-App • Changes to plans after initial submission that affect value will require an appraisal update at Final Submission

26. Initial Submission Other Submission Exhibits • Site Control • Certificate of Need (if applicable) • Title Search & Pro Forma • Land Title Survey • Budgets • Stabilized Operations • Initial Lease-Up • Development Costs • Affirmative Fair Housing Marketing Plan • Additional Facility Information • Early Commencement of Construction Exhibits(if applicable)

27. HUD Review of Initial Submission

28. Commitment • Term: • 120 days with one 120 day extension • Extension request must demonstrate forward progress on development • Extension requires updated appraisal and market study with final submission • Extension may require additional conditions as well • Re-opening fees and rules apply after extension period • New Conditions: • Submission of complete plans and specs • HUD approval of General Contractor / Architect(s) • HUD review and approval of Final Exhibit Submission • HUD review and approval of any 3rd Party Updates (as needed) • Mortgage Re-calculated with all applicable criteria • Lender has 10 business days to reject commitment

29. Final Submission • Updated Underwriting • Architectural Review • Cost Review • Contractor Exhibits • Architectural Exhibits • Final Plans / Specs • AIA B181(s) • Certifications • HUD-2328 • Major Movable Schedule • Construction Schedule • Soil Report • State Licensing • Additional Funding Source documentation • PLI exhibits • Property Insurance Requirements / Schedule • Zoning/Code Compliance • Utility Assurance • Other Misc. Exhibits • Updates of Initial Submission • Commitment Amendment • Draft Closing Documents

30. HUD Review of Final Submission

31. Update on Status of This Program • Draft documents are posted for the initial submission process on HUD.GOV • Beta testing of a live deal to verify process and documents are correct • Final Submission documents will be posted to HUD.GOV upon the beta test coming in for final submission