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FHA Office of Residential Care Facilities

FHA Office of Residential Care Facilities. Section 232 – Underwriting Highlights, Insurance, Closings , New Construction. Underwriting Highlights. Queue updates, Closings & Timing. Firm Commitments Issued as of 4/25/2014 . Firm Applications in Review as of 2/19/2014.

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FHA Office of Residential Care Facilities

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  1. FHA Office of Residential Care Facilities Section 232 – Underwriting Highlights, Insurance, Closings, New Construction

  2. Underwriting Highlights Queue updates, Closings & Timing

  3. Firm Commitments Issued as of 4/25/2014

  4. Firm Applications in Reviewas of 2/19/2014

  5. Firm Application Queue Numbersas of 4/25/2014

  6. ORCF Underwriting Contract Current Contract Underwriter Assignments

  7. Applications ReceivedFY 14 to 3/21/14

  8. Firm Commitments IssuedFY 14 to 4/25/14

  9. Insurance Changes Proposed changes were vetted with MBA and large FHA servicing lenders along with FNMA New Requirements: • 90 % of Estimated Replacement Cost. • Loss of Business Income • Windstorm coverage • Expanded flood insurance coverage if facility is located in flood zone

  10. Decision Circuit • Tool for setting the scope of the appraisal review. • All applications are looked at by an ORCF appraiser. • The scope of review is on a spectrum depending on risk factors.

  11. Flags -Continued • NOI trending down for 3 years. • Recent NOI at half of concluded rate. • Private Pay or Medicare census higher than proven history. • Medicaid census lower than history. • Occupancy lower than 75% • Change in potential resident days • Recent purchases

  12. Green Flags (tend to offset red flags) • DSCR over 2.00 • LTV under 80% • (LTV evaluated under two Scenarios) • As underwritten • Using most recent NOI and Avg Market Cap rate.

  13. Special Consideration • Loans over $25 million • History doesn’t match Operating Statement. • Purchase within 3 years.

  14. ORCF Loan Committee For 223f main concerns and example mitigation: • Valuing/sizing the loan using prospective NOI • Mitigation: Debt service reserve, reduce mortgage • Patient/Resident care issues • Mitigation: Third-party risk management (one-time or on-going) • Market concerns, facility low historical occupancy levels • Mitigation: Let season until operations turn-around, management/marketing efforts • Loan term as it relates to some functional obsolescence • Mitigation: Reduce loan term, reduce mortgage

  15. Continued ORCF Loan Committee New construction concerns • Borrower/Operator’s lack of experience in developing and operating similar facilities • Low equity contribution less than 20 % • Market concerns • Size of facility in relation to comparable • Aggressive metrics used in loan sizing

  16. Underwriting Highlights • What is going well • New Process for Reviews – changes • Expediting Processing & Reviews

  17. Underwriting Highlights Valuation Issues & Concerns • Prospective or Aggressive NOI conclusions • NOI Conclusion not yet Achieved • Fluctuating NOI History • Declining NOI trend • Aggressive Expense Ratio • Aggressive Cap Rate

  18. New Construction

  19. Proposed New Construction SUPPLY • Competition – existing and proposed (pipeline) • Market position within PMA • Saturation rates • Reasonable capture rates

  20. Replacement Facilities SUPPLY • Proximity • Same demographics • Same services – adding or deleting • How many current residents will transfer

  21. New Construction Supply CON’s and Moratoriums • CON (Certificate Of Need) • Moratoriums on adding new beds • State need calculations • Only transfer within county

  22. New Construction Supply Transitional Rehab Facilities • Hospital discharges to rehab • ALOS (Average Length of Stay) • Hospital incentives • Rehab purpose (cardio, stroke, hip, orthopedic, etc.)

  23. New Construction Demand Demand determinants for Assisted Living • Age • Household Income • Home Value • Income Qualification • Living Status • Acuity, Mobility and Care Limitations • Memory Care Adjustments

  24. New Construction Demand Demand determinants for Skilled Nursing • Age • Acuity • Income Qualification • Mobility • Demand for Transitional Rehabilitation

  25. Closings Expediting Section 232 Closings

  26. Closing TeamUpdates ORCF’s Closing Team is keeping the “conveyor belt” of closing moving! • FY 2013 had 766 closings, compared to 706 in FY 2012, 415 in FY 2011, and 309 in FY 2010 • Fiscal year to date volume much lower, mostly due to 223a7 volume dropping off.

  27. How do I get a HUD Closer assigned? • For a HUD Closer assignment (and any other closing related issues, including extensions) email ORCFCloser@hud.govwhen the HUD Attorney closing package is mailed. • Average turnaround time for closer assignment right now: 1-2 business days • ORCF has 11 full time Closers and 3 contract Closers (most pictured below at our January 2014 Closing Kaizen)

  28. Partnership & Collaboration Please Remember: • Complete, clean, and accurateclosing packages get reviewed and closed quicker • All special conditions must be met and properly documented prior to closing • Use the Special Conditions Matrix! • Responsiveness to HUD Closer and HUD Attorney and fast turnaround is KEY Closing Table Closing Docs

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