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OFFICE OF Residential Care

facilities

Midwest Lenders Conference – June 2013Section 232 LEAN Update

Tim Gruenes – Director, Asset Management & Lender RelationsRita Dockery – Supervisory Account Executive

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Loan Types and 2012 Activity

• Loan Types and FY 2012 Volume*:Section 223(a)(7): 52% of TotalSection 232/223(f): 45% of TotalSection 232 New Construction: 2% of TotalSection 232 Substantial Rehabilitation: 1

LoanSection 241(a): 1% of TotalSection 232 Blended Rate: 1 LoanSection 223(d): No Loans since FY 2011Section 232(i): 1 Loan

*Based upon Firm Commitments issued

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General Guidelines

• Lender Training in Philadelphia • All slide presentations posted to

FHA.GOV to include:Underwriting 101Loan Committee MechanicsNew Construction PanelAsset Management and Lender Relations Policy Appraisal/Survey/Environmental

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HUD REVIEW - HOW LONG WILL IT TAKE?

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Production Volume: Oct 1, 2012- May 2013

223a7 419223f 175232br 2232nc 10232sr 2241a 4Grand Total 612

223a7

223f

232br 232nc 232sr 241a

Total

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LOOKING BACK TO 2012

Actual Application Processing Times  01/01/2012 to 03/31/2012

Type of Application

# of Application

s

Average of Days in

Queue

Average of Days in

UW

Average of Days in Closing

Total Processing Time (Days)

223a7

72

97.4 50.4

86.5 234.4

223f

68 237.0

48.2

73.5 358.7

Other

5 230.8

61.2

373.0 665.0

Grand Total

145

167.5

49.7

90.3 307.6

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THIS YEAR- 2013 Processing Times

Actual Application Processing Times   1/1/2013 to 3/31/2013

  # of Applications

Average of Days in Queue

Average of Days in UW

Average of Days in Closing

Total Processing

Time

223a7 126.0 53.4

38.0 77 168.4

223f 30.0 42.4

82.4 63 187.9

Other 5.0 167.8

175.6 150.4 493.8

Grand Total 161.0

54.9

50.5 76.7 182.2

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All New Section 232 Loans

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013 (to

6/17/13)

0100200300400500600700800900

Applications ReceivedCommitments Issued

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Doing our best to keep pace……

• In FY 2012, we received 714 Firm Applications and issued 783 Firm Commitments.

• In FY 2012, average processing time for underwriting was 50 days, and we successfully reduced application queues.

• FY 2013 (as of 6/17/13), we have received 716 Firm Applications and issued 654 Firm Commitments. We are on a pace for…..Receipt of around 1,000 Firm ApplicationsIssuance of just over 900 Firm Commitments

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232 QUEUE VOLUME 

as of 1/31/2013

as of 2/28/2013

as of 03/31/13

as of 6/17/2013

223f Regular Queue 37 46 78 54

223f Portfolio Queue 0 0 0 8

223a7 66 83 74 30

232 New Construction 15 15 16 13

232 Sub-Rehab 2 2 3 1

241a Supplemental 5 5 5 6

232 Blended Rate 2 2 1 0

TOTAL APPLICATIONS 127 153 177 112

232 Queues

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General Guidelines…

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General Guidelines

• Participants ReviewMust be experienced:

Type (SNF/ALF/MC/ILU) Size & Average Occupancy Levels CMS Ratings Locations

• Loan Sizing/Value: Financial Performance- Trailing 12 Trends in Occupancy, NOI, Quality Mix Marketability (Age and Condition of Building)

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General Guidelines • State Surveys

“G” tag citationsInstances of actual harm or immediate

jeopardyOpen findingsPatterns of repeat findings/systemic

deficienciesCMS Star Rating Special Focus Facilities

• CMS has required nursing homes to be fully sprinklered by August 13, 2013.

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General Guidelines

Projects with New Units (Heightened Risk)• Strength of Participants:

Experience of participants with particular proposed type of facility (rent up and quality of care)

Financial wherewithal (ability to carry project if necessary)

• Overall Market Demand/Proposed Rents• Assumptions used for NOI Estimate

reasonable?• Assumptions used in Initial Operating

Deficit calculation reasonable?

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Addressing Backlog in Other Queue

• We are prescreening Other Queue projects to determine which projects to concentrate scarce appraisal resources on.

• HUD UW/WLM’s doing pre-screening will be contacting lenders with Other Queue projects.

Pre-screening using information on Lender Narrative

• Next two slides cover the key decision criteria we are using to prioritize projects…….

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Key Decision Criteria• Borrower & Operator/Management Agent Experience

10 or more relevant facilities (strong) 3 to 9 (medium)

• Marketing & Leasing Up 10 or more relevant facilities (strong) 3 to 9 (medium)

• Financial Strength Net Worth > Loan Amount (strong) Equal to Loan Amount (medium)

• Percent Total Equity in Deal 30% or more (strong) 20% to 30% (medium)

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Key Decision Criteria• Achieved Rates Compared to Subject

Equal to or Less (strong) Up to 10% above existing (medium)

• # of Units at our facility compared to existing facilities in the PMA Same or Fewer (strong) 0% to 100% larger (medium)

• Occupancy at Comps Greater than 95% (strong) 90-95% (medium)

• Other Unique Features may also impact underwriting risk

• Applications assessed as Medium or Strong will be given priority for appraisal review assignment.

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ORCF Claim Activity

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Work In Progress

232 Handbook (this year)

Asset Management Notification Forms Working on a system for getting

quarterly financial reporting for operator

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Work in Progress

Strengthening Relations/Collaborations CMS State Agencies Risk Management DEC OGC Ginnie Mae MF Housing

Florence Park, Care Center

Florence, KY

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What’s New?

• 2530 Interactive Webcast to be scheduled in the very near future

• Please email comments or suggestions 2530’s@hud.gov

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The Future State of HUD Legal Reviews

One OGC review to be performed, AFTER Firm Commitment issued EXCEPT if project has any of the following issues:

Accounts Receivable Financing, or

Master Lease for Medium and Large Portfolios, or

Issues that may arise in underwriting that would require a legal consultation (e.g., license not in the name of the Operator or Management Agent operating the project may trigger a review prior to Loan Committee)

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Loan Modifications

• Sample documents for lender submission posted to HUD.GOV: http://portal.hud.gov/hudportal/HUD?src=/

federal_housing_administration/healthcare_facilities/section_232/lean_processing_page/loan_servicing_guidance_home_page

• Checklist: Lender documents to submit Address all types of Loan Mods Will be revised in next week or so and posted to

HUD.GOV• Sample Format for Lender Analysis and

Recommendations: contains all required lender analysis, recommendations, certifications

2424

2525

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Loan Modifications, Continued

• General requirements GNMA Comfort Letter required if in GNMA pool Project must be out of lockout Project must pay any required prepayment penalties PCNA only required if >10 years since previous Interest rate premiums – The following costs cannot

be paid from trade premium:  borrower counsel, title and recording, organizational costs and 3rd party reports costs (e.g., PCNA).  Any portion of the trade premium that is not retained by Lender or applied to Lender costs (such as Lender's Counsel fees and GNMA commitment fee) may be used to defray the prepayment premium on the existing GNMA Securities, with the balance, if any, remaining to be contributed to the reserve for replacement.

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Loan Modifications, Continued

• Proposed Logistics:Documents required by Checklist:

Electronic submission to Leanwork@HUD.GOV (change will be made to checklist) and one hard copy to Account Executive (AE)

Account Executive assigned to project to process

Commitment letter signed at Loan Committee

Signing of final documents TBD Folks signing closing documents now, or WLM of AE who processed

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Loan Modifications, Continued

• Lender will be asked to address in Lender Narrative:R4R balance: If below $1,000 per unit limit,

we will ask lender to addressSprinklers: if Nursing Home and not listed

as fully sprinklered.If financially troubled after Modification

(below 1.11 DSCR), we’ll be asking for a plan to address

Medicare.GOV ratings – if applicable and if poor history of quality of care

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New Section 232 Forms

• 115 new Production, Asset management, and Closing Documents were announced March 14, 2013

• Mandatory use for submissions on or after 7/12/13:Optional use prior to

then, however, submissions must be entirely new or old documents

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REAC Inspections on Section 232’s

• Continue except for facilities categorized in system as Skilled Nursing Facilities OR ICFs

• SNF/ICF’s where most recent score was below 60 still get inspected; will continue until score 60+HUD can order inspections on SNF/ICF’s

where it determines it is needed

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State Survey Inspection Reports

• Available and FREE to Lenders for current HUD portfolio

• Available as a Risk Mitigation Tool • Training Provided Every Month• Report Provides:

Survey Performance history County and State RankingCurrent and Historical Risk Score Life Safety, Quality of Care, Survey Types

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Lender’s Corner• New Tool for Lender located on HUD.gov

Tool for lenders to use for the latest training opportunities

Tool for portal access offered by the ORCF for current HUD insured properties

http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration/healthcare_facilities/section_232/lean_processing_page/Lender_Corner

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Asset Management Lean Pilot

• Identifying Bottlenecks

• Provide Additional Training

• Gauge National Volume

• Serve the Industry in a reasonable time frame

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How can you stay informed?

• FHA.gov (click on Section 232 Lean

Program)

• LeanThinking@hud.gov

• Email blasts

• Contact Rita.J.Dockery@hud.gov or

Tim.P.Gruenes@hud.gov

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Organization Chart - ORCF

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Organization Chart – Production

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Organization Chart – Asset Management

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Thank you