Basics of the Lean Underwriting Process & Frequently Encountered Underwriting Deficiencies

1. Basics of the Lean Underwriting Process &Frequently Encountered Underwriting Deficiencies

2. Players in the Lean Process

3. Amee Welch HUD, Seattle • Amee.Welch@HUD.GOV • Initial contact with HUD • Adds project to SharePoint and DAP • Uploads electronic lender submission files to SharePoint • Deposits checks • Coordinates documents signed by Renee’ Greenman

4. HUD Workload Managers • Roger.Lewis@HUD.GOV Seattle • Patrick.Berry@HUD.GOV Detroit • Tim.Gruenes@HUD.GOV Minneapolis • Mary.V.Walsh@HUD.GOV (a7’s) Fort Worth • Assign workload to HUD Underwriters • Review HUD Underwriter recommendations • Lender contact for overarching issues • Leanthinking@hud.gov • Fill in for UW’s

5. HUD Underwriter • Assigned based upon workload • Located in a number of HUD Offices • Primary lender contact. • Processing/Underwriting • Pre-Application/Firm Commitment

6. HUD Underwriter, Continued • Early Commencement/Early Start • Draws • Cost Certification • Closing(s) on Some Projects

7. OIHCF Closer • Handle Program Portion of Closing • John Radcliff: john.p.radcliff@hud.gov • Adrienne Cohn: adrienne.cohn@hud.gov • Kate Murray (a7’s): kate.f.murray@hud.gov

8. Upper Level Staff • Roger Miller – Director of OIHCF • Bill Lammers – Acting Director of 232 • Renee’ Greenman – Acting Director – Field • Mark Williams – Development – Policy • Michael Vaughn – Asset Management

9. OIHCF Construction Manager • Coordinates construction – works closely with HUD Inspector • Addresses AE & Cost questions/issues • Participates in Pre-Construction Conference • Coordinates Change Orders, Permission to Occupy, Escrow Releases after Closing • Main contact: Mike.Peeler@hud.gov

10. HUD HQ’s Portfolio Reviews • Currently Mark Williams is performing this review • Required on large and mid-size portfolios • Details in Notices 01-03 and 04-15 • General rule: if > 10 projects, required. There are also aggregate mortgage amount limits.

11. OIHCF Appraiser • 232/223(f): HUD’s Risk Assessment determines whether review required. • NC/241a/SR: All appraisals/market studies will be reviewed • Some environmental reviews • Currently 6 on staff • Main contact: Wayne.Harris@hud.gov

12. Environmental Reviewer • Prepares 4128 (Environmental) • Local Multifamily staff • Workload Manager arranges

13. HUD FHEO Staff • Reviews Affirmative Fair Housing Marketing Plan on projects with new units • HUD Underwriter coordinates review

14. HUD Labor Relations Staff • Reviews Davis Bacon compliance

15. HUD Closing Attorney • Assigned by Regional Office of General Counsel • Workload Manager coordinates assignment • May be local (to project)

16. HUD Inspector • Attends Pre-Construction Conference • May be OIHCF staff or contract staff

17. FHA Approved Lender • Must be a MAP approved lender. • The existing MAP lender and underwriter approval process will continue to be followed: • LQMD: 202-708-2866

18. Lender Underwriter • Must be a MAP approved 232 Underwriter, and • Must have attended a LEAN training session or must have underwritten at least two LEAN projects under a LEAN approved underwriter

19. Example – Initial Contact to Closing – 223(f) • Lender contacts Amee Welch • Requests FHA # • Amee enters project into SharePoint and DAP • Lender assembles and underwrites the Firm Application • If questions/concerns: leanthinking@hud.gov

20. Example, continued • Firm Application complete - lender sends Amee Welch electronic version (CD or thumb drive) • Amee uploads data to SharePoint and project enters queue • APPS/2530’s processed – newly implemented

21. Example, continued • New Procedure on projects in Queue: (Robert Wolfrey) • Assignment of environmental reviewer. Email requesting Env. docs sent directly to Env. reviewer • Assignment of OGC closing attorney: Email requesting OGC docs be sent to OGC • As underwriter capacity becomes available, Workload Manager (WLM) assigns OIHCF underwriter (UW)

22. Example, continued • UW emails lender • 1 hard copy (plus second copy of 3rd party reports and narrative) to UW • Select documents to OGC Closing Attorney – if not previously requested when in Queue • UW begins Underwriter Punchlist for Firm • OGC Closing Attorney - Legal Punchlist

23. Example, continued • UW completes Risk Assessment Worksheet • Appraiser review needed - refer to OIHCF Appraiser • Coordinated by UW: • OGC Review • OIHCF Appraiser Review • Environmental Review

24. Example, continued • UW completes punchlist • UW documents uploaded to SharePoint • Loan committee • Results sent to lender – if Firm, with Closing Checklist • Uploaded to SharePoint

25. Example, If Reject…… • Potential debriefing with lender

26. Example, If Firm Commitment Issued…… • OIHCF Closer identified • Draft closing documents • OIHCF Closer • OGC Closing Attorney • OIHCF Closer – Closing Punchlist • Amendment processing • Cost Certification • Clearing programmatic conditions

27. Example, If Firm Commitment Issued…… • OGC Closing Attorney • OGC Closing Punchlist • OIHCF Closer, OGC Closing Attorney and lender agree on closing date. • Closing occurs

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

29. 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

30. Underwriting Guidance Home Page Lender Processing Information Revised Section 232/223(f) Documents Original Section 232/223(f) Documents Pre-Application (Link removed per 12/18/09 Email Blast) Initial Submittal of Firm (NC, SR, 241a): (Under Construction) Existing Construciton with New Addition: (Under Construction) Section 232 New Construction Section 232 Substantial Rehabilitation Section 232/241(a) Section 223(a)(7) on a 232 Section 223(d): (Under construction) Early Commencement of Construction Accounts Receivable Financing Documents Sample Closing Documents TAP OIHCF Processing of 232’s: (Under Construction)

31. Underwriting Guidance Home Page Questions? Visit our Frequently Asked Questions section. The LeanThinking Mailbox is now available! Please send any questions regarding processing LEAN 232’s to: LeanThinking@hud.gov Interested in getting updates on the LEAN 232 Program?Join our email list by sending your contact information to: Kristine.Martin@hud.gov Previous E-Newsletters Want to view Powerpoint presentations regarding LEAN 232?Visit the "Powerpoint Presentations" section. Want to view a list of new construction and substantial rehabilitation projects that are proposed or under construction under Lean?Visit the "List of Lean NC and SR Projects" section

32. Lender Email Blasts • Usually sent every two weeks • Hot topics, underwriting guidance for Lean projects • Example – next page

33. HUD’s LEAN 232 ProgramOffice of Insured Health Care Facilities (OIHCF) Update as of February 20th, 2009 As a Stakeholder in HUD’s LEAN 232 Program, we are committed to providing you with the best, most up to date information on the status of the Lean Program. As of February 20th, 2009, we would like to share with you the following: •New Tools Posted on FHA.GOV: FHA.GOV now includes the lender tools required for assembly of a Firm Application (and Pre-application) on 232 New Construction, 232 Substantial Rehabilitation,  Section 232/241(a), and Section 223(a)(7).  Moreover, there is guidance posted that deals with Early Commencement of Construction.  We will soon be posting the closing documents required for each of these programs as well as the Section 223(f) documents that we have revised as a result of our  first  KAISAN event.

34. Lender Submission

35. Where to Find Guidance • Checklist (including Endnotes) • Lender Narrative • Consolidated Certifications

36. Firm Application Checklist

37. Firm Application Checklist • Lists Required Documents • Standardized • Specialized for Each Loan Type • Includes Draft Firm Commitment with Attachments • Differences btwn new and old checklist

38. Lender Narrative Template

39. Lender Narrative Template • Consistent for all lenders – • Guides lenders in analysis • HUD reviewers know where information is • Differences btwn new and old Lender Narrative

40. Lender Narrative, Items Included • Summary of all pertinent project information • Sensitivity Analysis • Results of Lender Loan Committee • Project #’s: LTV and DSCR • Program Eligibility • Risk Factors

41. Lender Narrative, Items Included • Strengths • Weaknesses and Mitigation • Historical NOI • Occupancy: Subject Historical & Comparables • Appraisal • Environmental • Physical Plant

42. Lender Narrative, Items Included • Credit, Character, Experience of: • Mortgagor • Principals of Mortgagor • Operator • Parent of Operator • Management Agent

43. Lender Narrative, Items Included • Lease • Accounts Receivable Financing • State Surveys • Professional Liability Insurance • Eligible Debt • Maximum Insurable Mortgage

44. Consolidated Certification

45. Consolidated Certification • Consolidates previous separate certifications • Parties: • Lender • Mortgagor • Operator • Parent of Operator • Management Agent

46. Phase in of new documents • New documents will be posted to HUD.GOV. • When posted, lenders notified by Email Blast • Initially: Lenders have option of using either version • When lender sends hard copies, lender notifies HUD UW whether old or new are used. • Lender must entirely use either all old or new docs • 90 days from day rolled out – all submissions must use new documents.

47. Statistics

48. Lean Closings – Calendar Year

49. Average Time to Lean Closing • Average Days to Firm = 64 • Average Days to Closing = 126

50. Firm Issued or Closed