Hud Underwriting Punch List

Process Name: 232/223f Underwriting Punch-list

For: Multifamily Housing Processing DATE: XX/XX/XX

ASSIGNED HUD UNDERWRITER: XXXXXXXXXXX

PROJECT NAME: XXXXXXXXXXX

PROJECT NUMBER: XXX-XXXXX

Version Date: July 24, 2008 1

Section A: General Underwriting 1) Security and Collateral (Physical)

2) Reliability of the Income Stream (historically and future) (Fiscal)

3) Borrower and Operator Credit Worthiness (Compliance with Business Agreements)

Step Activity Key Point Source Document Comments

A1 Verify receipt

of check

Confirm

Application Fee:

Email received from

the check depositor

confirming check

receipt.

Correct fee amount

Verification must be

received within

three days of

application receipt.

Application Fees

are $3/$1000 (not

rounded)

-email

-Check

Yes, Move on

Yes, Move on

No, Confirm with check

depositor

No, note discrepancy

amount and move on

A2 Do Read Lender Narrative

in its entirety (See Step

A11 before moving on

to next step.)

This will give you a

global overview of

project and where

there might be

Potential issues /red

flags to trigger you

to go to the source

document

-Lender Narrative

(01-02)

-Source Documents

(e.g. Appraisal,

PCNA, etc.)

Yes, The Lender included

recommended firm

commitment conditions

and/or waivers—review

and capture them for firm

commitment

No, Special conditions

or waivers recommended

by lender--Move on

A3 Do Begin Mortgage Credit

Supplement by listing

principals of the

transaction

To Track who is who

in the transaction

- Lender Narrative

(01-02: Executive

Summary /

Mortgagor /

Principal of

Mortgagor /

Operator / Parent

of Operator /

Management

Agent)

- Contact List (01-

08)

Yes, Listing of principles

included—Complete

Mortgage Credit

Supplemental

No, Principles not

included - Contact lender








- Organization

Charts/Charts

(Exhibits: 03-01 / 04-

01 / 05-01 / 06-01)

A4 Do Contact Asset

Manager (AM) to

determine status of

2530

2530‘s submitted for

all applicable

participants

Firm Commitment

can not be issued if

any of the

applicable

participants have

flags in the system.

-APPS approval

-2530 documents

-2530 checksheet

-Mortgage Credit

Supplemental

-APPS Certifications

(Exhibits: 03-04 / 04-

04 / 05-04 / 07-04)

Yes, 2530s (APPS)

submitted for all

applicable participants

without any flags. (AM will

provide UW with copies of

approved APPS or

signed/approved HUD-

2530’s for each

participant.)—Move on

Yes, 2530s (APPS)

submitted for all

applicable participants,

however there are flags—

Consult with HUD AM

regarding removal of flags

prior to contacting lender

No, 2530s missing for

applicable participants--

Contact lender

A5 Check

For listing of

repairs

Lender Narrative must

include:

Listing of repairs

(critical, non-critical,

owner elected)

Estimated costs. If

loan includes repairs it

MUST include

estimated costs.

Construction Manager

must be alerted

- Lender Narrative

(01-02: Executive

Summary and

PCNA section)

- PCNA (02-03)

- Firm Commitment

(Exhibit: 01-04:

Exhibit C)

Yes, All repairs listed--

Alert the Construction

Manager who will contact

HUD Inspector.

No, Review PCNA

Email sent: _________(date)








A6 Check for

Commercial

Space

Commercial Space, if

any, does not exceed

either 20% of the total

net area or 20% of

effective gross income.

If no to EITHER total

net OR effective

gross income, the

project is ineligible.

- Lender Narrative

(Exhibit: 01-02:

Program Eligibility-

Commercial

Space/Income)

Yes, Commercial space,

however:

<20% of total net

AND

<20% of effective

gross income -

Go to A7

Yes, Commercial space

and is greater than 20%, on

either above condition,

Contact lender for a

waiver

NOTE If waiver attached,

review for

recommendation to

Director

No Commercial space,

Skip to A8

A7 Check Does the commercial

space exceed 5% of

the square footage, or

income exceeds 5% of

the effective gross

income?

Commercial space

intended to

exclusively serve

the residents of the

facility, is not

counted toward

the limit. Also,

daycare space is

not considered

commercial space.

- Lender Narrative

(Exhibit: 01-02:

Program Eligibility-

Commercial

Space/Income)

Yes, Consult with HUD

Appraiser

No, Move on

A8 Check for

non-

conforming

use

Is present use

conforming use

(Zoning)

If use is

nonconforming it

should at least be

―legal

nonconforming‖.

If legal non-

conforming use, the

insurance must

- Lender Narrative

(Exhibit: 01-02:

Project Description -

Zoning)

Yes, legal conforming

use—Move on

No, use is legal non-

conforming with zoning

ordinance coverage -

Move on

No, use is legal non-

conforming without zoning

ordinance—Require

adequate Firm

Commitment Special








include zoning

ordinance

coverage.

Condition

No, use is non-

conforming—Contact HUD

Legal and Lender for

comments for UW summary

A9 Check for

license

Verify

Current license(s)

covers the required

number of beds/units

Verify that the DATE on

the license is current

and is issued to correct

entity

- Lender Narrative

(Exhibit: 01-02:

Program Eligibility -

Licensing/Certificat

e of Need/Keys

Amendment)

- Licenses (Exhibit:

08-02)

Yes, License covers

number of beds, is current

and issued to correct

entity—Move on

No, License does not

include:

Current date

Correct entity

Required number

of beds

-If any of the above

checked--Contact lender

and add to Special

Conditions It will be a firm

condition

A10 Do Determine if accounts

receivable financing

(line of credit) is

proposed.

This must go

through a more

detailed review.

Complete HUD

Accounts

Receivable Punch

List

- Lender Narrative

(Exhibit: 01-02:

Special

Underwriting

Considerations-

Q11)

- Financial

Statement

Certifications

(Exhibits: 03-08 / 05-

08 / 06-08)

Yes, Notify Supervisory

Project Manager, and

Office of General Counsel

prior to initiation of HUD

Accounts Receivable

Punch List.

No, Move on

A11 Do Confirm format of

Lender Narrative

includes all required

sections.

Complete HUD

Underwriter

Verification of

Lender Narrative

Format Punch List

-Lender Narrative

(Exhibit: 01-02)

Yes, The Lender‘s

Narrative is identical to the

required Narrative format –

Move on

No, Contact Lender with

list of Narrative

deficiencies, and require

the submission of an

updated Narrative that

fully meets HUD‘s Lender

Narrative format.







Section B: General Underwriting Objective 2) Reliability of the Income Stream (historically and future) (Fiscal) /Administrative Appraisal Review


B1 Do Risk

Analysis

Worksheet

Complete the Risk

Analysis Worksheet to

determine if a full

appraisal review is

needed.

Risk Analysis

Worksheet tells

you whether you

need an HUD

appraiser or not!

-Excel spreadsheets -

3 versions of Risk

Analysis Worksheet

for NH, ALF, & B&C

Make certain to

select CORRECT

worksheet (i.e. NH,

ALF or B&C or RCF)

Total Point Awarded< 0--

HUD Appraiser required for

technical review of the

appraisal. Notify lender

summarizing reason for

review.

Total Points Awarded >0

- Move on

B2 Check loan-

to-value

Is the proposed

mortgage higher than

80% of the underwriter‘s

concluded value?

Check: divide

maximum mortgage

amount by the value

(see HUD-92264A, Line

3A)

-Lender Narrative

(Exhibit 01-02; Risk

Factors Q1 & 2)

-HUD-92264

-HUD-92264A

-Exhibit: 01-03 A&C

No, Move On YES, Lender must provide

sufficient

justification/mitigation to

support the additional risk

associated with the loan.

HUD Underwriter will have

to specifically approve this

item and may ask for

additional input & request

a discussion with the

Lender and/or HUD HQ.

B3 Check debt

service

coverage

Is the debt service

coverage of the loan

less than (a) 1.45 for

skilled nursing; (b) 1.30

for assisted living; or (c)

1.25 for independent or

board and care

facilities?

Check calculation: net

Lender Narrative

(Exhibit 01-02; Risk

Factors Q1 & 2)

-HUD-92264 &

HUD-92264A

Exhibit: 01-03 A&C

HUD-92438 Exhibit: 01-

03 D

No, Move On YES, Lender must provide

sufficient

justification/mitigation to

support the additional risk

associated with the loan.

For continuum of care

facilities, the debt

coverage for the highest

level of care should prevail

and justification could be a

calculation of how the








income (HUD-92264 &

A) divided by annual P

& I plus MIP (HUD-

92264A & 92438)

individual components are

not lower than the

aforementioned

coverages. HUD

Underwriter will have to

specifically approve this

item and may ask for

additional input & request

a discussion with the

Lender and/or HUD HQ.

B4 Verify real

estate taxes

included

Do the underwritten

expenses include all

real estate taxes

(without tax

abatements or

incentives)?

-Annual Tax

Abatement Savings

- Lender Narrative

(Exhibit: 01-02:

Special Underwriting

Considerations-Q15;

AND Income

Approach-Expenses)

Yes, Move on No, Have HUD Appraiser

reviews taxes and

comment back if

acceptable and

provide recommendation

B5 Check for

leased land

Check to see if the

project is on leased

land?

- Lender Narrative

(Exhibit: 01-02:


Considerations-Q9)

Yes, leased land

Have HUD

Appraiser review

Appraisal Report—DO

NOT CONTINUE until

Receipt of appraisal

Review

Have MC Tech

review ground rent

No, Move on

B6 Check for

adult day

care income

Does The underwritten

income include adult

day care income?

- Lender Narrative

(Exhibit: 01-02:


Considerations-Q8;

AND Income

Yes, Consult with HUD

Appraiser whether full

review required

No, Move on








Approach-Income)

B7 Check for

deviations

Has the lender justified

any deviations from the

appraiser‘s

conclusions?

- Lender Narrative

(Exhibit: 01-02:

Executive Summary;

AND Appraisal)

- Appraisal (Exhibit:

02-01)

Yes,

Sufficiently justified--

Move on

Insufficient justification

Consult HUD Appraiser

No, justification provided

- contact lender

B8 Check for

Hypotheticals

Are there Hypothetical

or Extraordinary

Assumptions other than

completion of repairs?

- Lender Narrative

(Exhibit: 01-02:

Appraisal -

Hypothetical

Conditions and

Extraordinary

Assumptions)


02-01: Assumptions &

Limiting Conditions)

- Statement of Work

Yes, Consult HUD

Appraiser to confirm

acceptability or

recommend technical

review if more clarity is

necessary

No, Move on

B9 Check for

declining

market

Is there a declining

market?

If yes, have a staff

appraiser review

the market

analysis section

- Lender Narrative

(Exhibit: 01-02:

Appraisal - Market

Analysis – Q1)

Yes, Declining market--

Consult HUD Appraiser to

TEST if appraisal review is

necessary

No, Move on

B10 Check for

remaining

economic life

Has justification been

given for the

determination of the

subject‘s remaining

economic life?

Loan term is the

lesser of 75% X

economic life or

35 years.

- Lender Narrative

(Exhibit: 01-02:

Appraisal - Remaining

Economic Life)

-HUD-92264-HCF

(Exhibit: 01-03A: K-1)


02-01: Cost

Approach)

Yes, Move on

No, Consult with HUD

Appraiser








B11 Check for

income

approach

emphasis

The Lender UW placed

the greatest emphasis

on the conclusions on

the Income Approach.

-Lender Narrative

(Exhibit: 01-02:

Appraisal –

Reconciliation)

Yes, Move on

No, Contact HUD

appraiser to review the

Value Reconciliation

Section of the appraisal

B12 Do review

survey and

title

Review Survey and Title

for rights of third parties

(e.g. easements) with

material effects (e.g.

Runs through middle of

building,

encroachments,

egress, land-locked)

Take concerns to

HUD appraiser IF

not addressed

appropriately in

Lender narrative

- ALTA/ACSM Land

Title Survey (Exhibit:

08-04)

- Title (Exhibit: 08-03)

- Lender Narrative

(Exhibit: 01-02:

ALTA/ACSM Land Title

Survey; AND Title)

Yes, Easements &

encroachments with

material effects --Consult

HUD appraiser and/or HUD

legal

Yes, Easements &

encroachments, however,

they have no material

affect-- Move on

No, easements and

encroachments—Move on

B13 Do notify

appraiser

Notify appraiser of

needed reviews in

addition to 4128!

(Environmental

ALWAYS required)

Sometimes there

maybe a full

appraisal review

Yes, HUD appraisal

reviews needed in addition

to completion of HUD 4128

(Environmental Review)—

HUD Appraiser contacted

& given 7 business days to

complete appraisal and

HUD 4128 reviews

No HUD appraisal

reviews required—HUD

Appraiser contacted &

given 7 business days to

complete HUD 4128

environmental review

Section C: Security and Collateral (Physical Condition) PCNA Review Security and Collateral (Physical)









C1 Check for

changes to

repair

conclusions

Has the

Lender

suggested

changes to

the Needs

Assessor‘s

repair

conclusions?

- Lender Narrative

(Exhibit: 01-02: Project

Capital Needs

Assessment (PCNA –

Exhibit 02-03))

Yes,

Lender‘s

changes are

justified--Move

on

Lender‘s

changes not

justified—

Consult HUD

Construction

Analyst

No, Move on

C2 Check for

repair

inspectability

Read the

repair list

are the repairs

clearly

described in

terms of

Inspectability

(location and

what the

need is)

If not inspectable,

consult

construction

analyst or ask

lender for a

clarified list

-Lender Narrative (Exhibit:

01-02: Project Capital

Needs Assessment

(PCNA)-Repairs –

Completion and

Inspection of Repairs)

- Firm Commitment

(Exhibit: 01-04: Exhibit C)

- PCNA (Exhibit: 02-03)

Yes, Repairs

clearly described—

Move on

No, Contact lender

and/or HUD Construction

Analyst

C3 Verify

compliance

with

accessibility

requirements

Is the project

in

compliance

with the Fair

Housing

Accessibility

Guidelines

(FHAG), and

Part 504 of the

Rehabilitation

Act of 1973

FHAG

Compliance: All

covered

multifamily

dwelling units

available for first

occupancy after

March 13, 1991.

Section 504/UFAS

Compliance: All

- Lender Narrative

(Exhibit: 01-02: Project

Capital Needs

Assessment (PCNA) –

Exhibit 02-03 -

Handicapped

Accessibility)

-Fair Housing Accessibility

Guidelines, and Section

504 / UFAS

Yes, In

compliance—Move

on

No, Consult with

Construction Analyst

and/or lender








(aka – Section

504) and the

Uniform

Federal

Accessibility

Standards

(UFAS)?

If not, verify

that the

repairs are

included in

the list of

critical repairs

housing receiving

Federal financial

assistance, plus all

existing HUD

Section 232 New

Construction, and

existing HUD

Section 232

Substantial

Rehabilitation

(but only those

building elements

that underwent

alteration), built

after 1973.

C4

Determine the

adequacy of

the

Replacement

Reserve

Account for

Capital Items,

and Major

Moveable

Equipment

Has the lender

supplied a

Replacement

Reserve

Funding

Schedule

(showing all

funding

needs, and a

proposed

Initial and

Annual

Deposit) that

shows a

positive

Reserve

balance in

years 1 – 15?

Replacement

Reserve Funding

Schedule must be

attached to the

Firm Commitment


01-02: Project Capital

Needs Assessment

(PCNA)

-Exhibit 03-03;

Replacement Reserves

-Firm Commitment

(Exhibit: 01-04: Exhibit B)

PCNA (Exhibit: 02-03)

Yes, Move on No, However, If negative

balance justified—Notate

for Loan Committee UW

Summary and Move on

No, Also, negative

balance not justified—

Contact lender

C5 Determine if

justification for

deviations

Has the lender

underwriter

justified any

- Lender Narrative (01-02:

Executive Summary; AND

Project Capital Needs

Yes, deviation,

however they are

justified--Move on

No, deviation—Move on








deviations

From the third

party PCNA

Assessment (PCNA))

- PCNA (Exhibit: 02-03)

Yes, deviations,

however not

justified—Contact

lender

Section D: Credit Worthiness / Character of the Mortgagor Objectives: 1)Security and Collateral (Physical) and 3)Borrower and Operator Credit Worthiness (Compliance with Business Agreements)


D1 Determine

the

mortgagor

Recall who the

mortgagor is,

type of

ownership

structure and

principals

Required credit

reviews and

experience

To ensure credit,

financial,

experience

review is on the

mortgagor and

principal (some

names are very

similar)

Use identified

mortgagor to

complete section

D.

- Mortgage Credit

Supplement

- Lender Narrative

(Exhibit: 01-02: Executive

Summary)

-Organization Chart

(Exhibit: 03-01)

- Organization Docs

(Exhibit: 03-02)

D2 Verify

experience

of Principals

Does the lender

narrative and

resumes for the

principals of the

mortgagor

evidence a

minimum of 3

years owning or

Gain a good

understanding of

the background

and experience

of the mortgagor

and its principals

- Lender Narrative

(Exhibit: 01-02: Mortgagor

- Experience /

Qualifications; Principal

of Mortgagor –

Experience /

Qualifications)

Yes, Move on

No, Refer to HUD Asset

Manager to determine

acceptability of

mortgagor‘ experience.








operating

SIMILAR/

RELEVANT

properties?

- Resumes for Principals of

the Mortgagor (Exhibit:

04-03)

- Mortgage Credit

Supplement and other

related documents.

D3 Check for

Credit

History

Does the

Lender‘s

Underwriting

Narrative

And Super

Certifications or

Credit Reports

for the

Mortgagor and

its principals

identify any of

the following:

a) Delinquent

Federal

Debt;

b) Judgments;

c) Suits or legal

actions;

d) Bankruptcie

s;

Tax liens?

These items must

be appropriately

resolved and

documented.

Cannot issue firm

commitment with

outstanding

issues.

- Lender Narrative


- Q2-6; Principal of

Mortgagor – Q1-5)

- Certification (Exhibit: 03-

05, Part II and

attachments; Exhibit: 04-

05, Part I)

- Credit Reports (Exhibits:

03-06 / 04-06)

Yes, Consult with

HUD Mortgage

Credit Analyst (MC)

to determine if

lender addressed in

an appropriate

manner. MC will

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

No, Move on Notes: Credit reports must be current within 60 days of

application submission.

D4

Check for

Credit

History

Other

Business

Concerns

Does the

Underwriting

Narrative identif

y any other

business

concerns

involving

These items must

be appropriately

resolved and

documented

-Lender Narrative (Exhibit

01-02)

-Mortgagor-Q2-6

Principal of Mortgagor-

Exhibit: 04-6B, Q1-5

Yes--Consult with

HUD Mortgage

Credit Analyst (MC)

to determine if

lender addressed in

an appropriate

manner. MC will

No-Move On








pending

judgments,

legal actions or

suits or

bankruptcy

claims as found

through a 10%

sampling of

businesses

noted on the

credit report.

-Certification Exhibit: 03-

05, Part II for mortgagor

principals

-Credit Reports – Exhibits:

03-06 & 04-06 for

mortgagor principals

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

D5 Evaluate

credit score

Based on the

credit payment

delinquency risk

score provided

by the credit

agency, do the

scores show

that the

Mortgagor and

its principals are

not a high risk?

OR

Do the

Mortgagor and

its principal‘s

Personal Credit

Report score

exceed 650?

Credit reports: At

a minimum, an

acceptable

commercial

credit report must

include the

following: (a.

public filings that

includes suits,

liens, judgments,

bankruptcies &

federal debt; (b.

UCC filings; (c.

credit payment

history; (d.

industry standards

showing how the

facility compares

in the areas of

financial stress &

payment trends;

and a credit

payment trends;

and (e. a credit

- Lender Narrative


- Credit History; Principal

of Mortgagor – Credit

History)

- Credit Reports (Exhibits:

03-06 / 04-06)

Yes, Move on No, Consult MC to

advise about acceptability

OR outline requirements for

appropriate resolution.

Work with MC until resolved

or rejected.

Notes:

*Credit reports for newly formed single asset entities will

contain minimal information.








payment

delinquency risk

score over a 12-

month period.

Scores

determined to be

a high risk, must

be thoroughly

explained by the

lender.

Justification of

late payments,

charge offs, etc.

are required if the

score is below,

and it is justified

satisfactorily,

continue

D6 Evaluate

Financial

Stability

Has the lender

appropriately

addressed any

material

accounts

payable over

60 days?

Material amounts

are in excess of

$2,500

Aging of

Accounts

payable is a

measure of an

entity‘s current

and past

payment history

- Lender Narrative

(Exhibit: 01-02:

Mortgagor – Financial

Statements – Q4)

- Balance Sheet (Exhibit:

03-07) and Schedule of

Accounts Payable

Yes, Move on No, Contact lender to

obtain satisfactory

explanation








D7 Evaluate

Financial

Stability

Has the lender

appropriately

addressed any

material

accounts

receivable over

60 days?

Are all

governmental

reimbursements

over 60 days

within

appropriate

time frames for

the

governmental

agency?

Material amounts

are in excess of

$2,500

Aging of

Accounts

receivable is

measure of an

entity‘s ability to

collect

- Lender Narrative

(Exhibit: 01-02:


Statements – Q5)



Accounts Payable


obtain satisfactory

explanation

D8 Evaluate

Financial

Stability

Are all tenants

deposit

accounts fully

funded?

Tenant deposit

accounts can

include security,

cleaning, key,

and other

deposits that can

be refunded to

the tenant

Balance

Sheets(most

recent) should

include Asset and

offset Liability

account for the

tenant deposits

- Lender Narrative

(Exhibit: 01-02:


Statements – Q6)


03-07)


obtain satisfactory

explanation and resolution








D9 Evaluate

any existing

debt

Are there any

debts on the

balance sheets

that will survive

closing?

Debts that survive

closing must

conform to HUD‘s

surplus cash, note

requirements

and the firm

commitment must

have a special

condition

Compare Notes

payable on the

most recent

Balance Sheet to

the Lender’s

Underwriting

Narrative


03-07)

- Lender Narrative

(Exhibit: 01-02: Mortgage

Determinants –

Transaction Costs –

Existing Indebtedness)

- Certification of

Outstanding Obligations

(Exhibit: 08-01)

- Pro Forma Title (Exhibit:

08-03B)

Yes, Consult with

MC to determine if

the surviving debt is

permissible. MC to

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

No, Move on

D10 Evaluate

existing

debt

Are any of the

debts to be

paid off less

than two years

old?

Are any of the

debts to be

paid off less

than five years

Any debt(notes

payable)placed

on the project

within the last two

years must be

reviewed to

ensure that they

meet the

definition of

―Eligible Debit‖

and do not

violate the

program intent –

no cash out

Any debt to be

refinanced that is

less than five

years old and is

- Balance Sheets

(Exhibits: 03-07 / 03-08 /

03-09)

- Lender Narrative

(Exhibit: 01-02:)

Mortgage Determinants –

Transaction Costs –

Existing Indebtedness –

Q2 & 3 (See Program

Guidance in Lender

Narrative Template.)

-Certification of

Outstanding Obligations

(Exhibit: 08-01)

- Title Search (Exhibit: 08-

03A)

Yes, However,

the debt was used

to finance repair to

the project—Move

on

Yes, And the

debt was used for

other than repair to

the project--Consult

with MC to

determine if

permissible. MC

analyst to advise

about

acceptability OR

outline

requirements for

appropriate

No, Move on Two-Year Rule: Any debt to be refinanced that is less than

24-months old will have to be investigated and must meet

the definition of ―Eligible Debt‖ below. Only 90% of the

outstanding balance of the debt under investigation

needs to be evidenced as ―eligible‖ to qualify the entire

balance.

Example: Thirteen months ago, the mortgagor obtained a

loan to replace the siding. The current balance is

$400,000. If the borrower can provide sufficient

documented evidence that clearly demonstrates the cost

and content of the expenditures within the appropriate

timeframes to qualify at least $360,000 (90% of $400,000),

the lender may include the entire $400,000 balance as

eligible debt.

Five-Year Rule: Any debt to be refinanced that is less than

five-year old AND is owed to either: a. the underwriting

HUD lender; or, b. any entity related to the HUD lender, no

matter how slight the identity-of-interest will have to be








old and owed

to either (a)

your company

(Lender), or (b)

any entity

related to your

company, no

matter how

slight the

identity-of-

interest?

owed to either the

underwriting HUD

lender; or any

entity related to

the HUD lender,

no matter how

slight the identity-

of-interest will

have to qualify as

Eligible Debt.

Balance Sheet

(most recent)

compared to

previous years

balance sheets

resolution. Work

with MC until

resolved or

rejected.

qualified as ―Eligible Debt‖, meeting the definition below.

In this case, only the ―eligible‖ portion of the outstanding

balance qualifies.

Example: Thirty months ago, the mortgagor obtained a

loan from the HUD lender applying for mortgage

insurance. The loan was made to replace the siding. The

current balance is $400,000. The lender can only include

the qualified balance as eligible debt. For instance, if the

borrower or lender can only provide sufficient

documented evidence that clearly demonstrates the cost

and content of the expenditures within the appropriate

timeframes to qualify $375,000, the lender may only

include $375,000 balance as eligible debt.

Definition of Eligible Debt: Existing indebtedness in a

refinancing transaction is defined as:

1. Outstanding mortgage(s) incurred in connection with

the construction of the project or with capital

improvements made to the property as confirmed by

the current mortgagee.

2. Other recorded indebtedness such as mechanic's liens

and tax liens provided they did not result from personal

obligations of the mortgagor.

3. Unrecorded debt directly connected with the project

supported by documentation from the mortgagor. If

the indebtedness is not recorded, the mortgagor must

provide the Lender with documentation which

unquestionably indicates that the obligation is directly

connected to the project. Examples include:

a. Indebtedness incurred in making needed

improvements and betterments to the property.

b. Indebtedness incurred or advances made to cover

operating deficits








4. Other eligible costs associated with paying off the

eligible debt. Examples are:

a. Reasonable delinquent and accrued interest

b. Reasonable prepayment penalties on the mortgage

c. Recording, release, and re-conveyance fees

d. Documentation or processing fees

D11 Evaluate

existing

debt

Does the

mortgagor

have any

identities of

interest with the

existing lender?

- Lender Narrative

(Exhibit: 01-02: Special

Underwriting

Considerations - Q7)

- Certification (Exhibit: 03-

05: Part V)

Yes, Consult with

MC to determine if

permissible. MC to

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

No, Move on

D12 Evaluate

existing

debt

1) Is any of the

existing debt

cross-

collateralized

with other

assets?

2) Is any of the

If debt is cross

collateralized,

debt must be

allocated

between each

asset in a

reasonable

manner.

- Lender‘s Narrative


Underwriting

Considerations - Q2; AND

Existing Indebtedness)

- Title Search (Exhibit: 08-

03A)

- Title Exceptions (Exhibit:

08-03C)

Yes, However,

debt was allocated

proportionally

between each

asset—Move on

Yes, However,

debt not allocated

proportionately

between assets—

Contact lender

Yes—Consult

No, Move on








existing debt

Financed with a

line of credit?

with MC

D13 Check for

secondary

financing

Is there

secondary

financing

proposed?

The Lender

Narrative should

identify any

secondary

financing

proposals.

- Lender Narrative


Underwriting

Considerations – Q14;

AND Source & Uses)

- Pro Forma Title (Exhibit:

08-03B)

Yes, Consult with

MC for

acceptability or

plan of action

No, Move on

Section E: Credit Worthiness/Character of the Operator/Licensee Objective: 3) Operator/Licensee Credit Worthiness (Compliance with Business Agreement


E1 Do Recall who owns

the license

License determines the

operator. This is critical

since it tells you where

the money is!

This could be the

mortgagor

- Lender Narrative

(Exhibit: 01-02:

Program Eligibility

- Licensing/

Certificate of

Need/Keys

Amendment)

- Licenses (Exhibit:

08-02)

Yes, it clear who

owns the license—

move on

No, License is not in name

of Operator--Request

modification from Lender.

(UW may make this a special

condition and move on.)

E2 Do evaluate Review lender Make certain they - Lender Narrative Yes, No, Consult with HUD








level of

experience

narrative and

operator resume to

determine the level

of experience

Are they qualified

to operate this type

facility?

have operated

SIMILAR/

RELEVANT properties

minimum 3 years

Gain good

understanding of the

background and

experience of the key

players:

(i.e. principals,

administrator)

This gives you an

indication of the

operators team and it‘s

stability and

experience

(Exhibit: 01-02:

Operator –

Experience /

Qualifications)

- Resume (Exhibit:

05-03A)

- Schedule of

Facilities Owned,

Operated, or

Managed

(Exhibit: 05-03B)

- Mortgage Credit

Supplement and

other related

documents.

experienced -

Move on

Asset Manager to determine

acceptability of operator‘s

experience if less than 3

years.

E3 Check

Significant

Credit Issues

Does the Lender‘s

Underwriting

Narrative

And Super

Certifications or

Credit Reports for

the Operator

identify any of the

following:

a) Delinquent

Federal Debt;

b) Judgments;

c) Suits or legal

actions;

d) Bankruptcies;

e) Tax liens?

These items must be

appropriately resolved

and documented.

Cannot issue firm

commitment with

outstanding issues.

- Lender Narrative

(Exhibit: 01-02:

Operator – Q2-6)

- Certification

(Exhibit: 05-05,

Part II and

attachments)

Yes, to any--

Consult with HUD

Mortgage Credit

Analyst (MC) to

determine if Lender

addressed in an

appropriate

manner. MC to

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

No, Move on

.

Notes:

Credit reports must be current within 60 days of









E4 Check for

Credit

History

Other

Business

Concerns

Does the

Underwriting

Narrative identify a

ny other business

concerns involving

pending

judgments, legal

actions or suits or

bankruptcy claims

as found through a

10% sampling of

businesses noted

on the credit

report.

These items must be

appropriately resolved

and documented

-Lender Narrative

(Exhibit: 01-02):

Operator Exhibit:

05-6B; Q2-6

-Certification

(Exhibit: 05-05 Part

II for Operator)-

-Credit Reports –

Exhibit: 05-06B for

Operator

Yes, Consult with

HUD Mortgage

Credit Analyst (MC)

to determine if

lender addressed in

an appropriate

manner. MC will

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

No, Move On

E5 Do evaluate

credit score

Based on the credit

payment

delinquency risk

score provided by

the credit agency,

do the scores show

that the Operator

are not a high risk?

OR

Does the

Operator‘s or

Operator‘s

principal‘s Personal

Credit Report score

exceed 650?

Credit reports: At a

minimum, an

acceptable

commercial credit

report must include the

following: (a. public

filings that includes

suits, liens, judgments,

bankruptcies & federal

debt; (b. credit

payment history; (c.

industry standards

showing how the

facility compares in the

areas of financial stress

& payment trends; and

a credit payment

trends; and (d. a credit

payment delinquency

- Lender Narrative

(Exhibit: 01-02:

Operator – Credit

History)

Yes, Move on No, Consult HUD

Mortgage Credit Analyst to

advise about acceptability

OR outline requirements for

appropriate resolution. Work

with MC until resolved or

rejected.

Notes:

*UCC filings are not as important for Operators.

*Credit reports for newly formed single asset entities will

contain minimal information.








risk score over a 12-

month period.

Scores determined to

be a high risk, must be

thoroughly explained

by the lender.

Justification of late

payments, charge offs,

etc. are required if the

score is below, and it is

justified satisfactorily,

continue

E6 Do Evaluate

Financial

Stability

Has the lender

appropriately

addressed any

material accounts

payable (AP) over

60 days?

Material amounts are in

excess of $2,500

Aging of Accounts

payable is measure of

an entity‘s current and

past payment history

- Lender Narrative

(Exhibit: 01-02:

Operator –

Financial

Statements – Q4)

- Balance Sheet

(Exhibit: 05-07)

and Schedule of

Accounts

Payable

Yes, Move on

N/A, No Material

AP > 60 days—

Move on

No, Consult with lender to

obtain satisfactory

explanation








E7 Do Evaluate

Financial

Stability

Has the lender

appropriately

addressed any

material accounts

receivable (AR)

over 60 days?


excess of $2,500

Aging of Accounts

receivable is measure

of an entity‘s ability to

collect

Check to ensure that

all governmental

reimbursements over 60

days are within

appropriate time

frames for that

governmental agency.

See lender‘s narrative

for backup

- Lender Narrative

(Exhibit: 01-02:

Operator –

Financial

Statements – Q5)

- Balance Sheet

(Exhibit: 05-07)

and Schedule of

Accounts

Payable

Yes, Move on

N/A, No Material

AR > 60 days—

Move on

No, Consult with lender to

obtain satisfactory

explanation

E8 Evaluate

cash flow for

financial

condition

Is the Net

Operating Income

(NOI) negative or

declining for the

year-to-date and

last 3 fiscal years (as

applicable)?

If negative NOI, review

lender narrative to

assess justification

NOI is before

depreciation and

amortization and lease

payment

In cases where there is

no operator or the

operator is newly

formed, review the

Financial Statements (P

and L/Income

Statement) of the

Mortgagor.

- Lender Narrative

(Exhibit: 01-02:

Operator –

Financial

Statements – Q3)

- Operator

Financial

Statements

(Exhibits: 05-07 /

05-08 / 05-09 / 05-

10)

Yes

Justified—

Move on

Not justified—

further review

and explanation

required from

lender

No, Move on








E9 Evaluate

state

surveys

Does the state

surveys identify

(during last 3 yr

period) any

instances of actual

harm and/or

immediate

jeopardy

Determine if corrective

action plan exists and

state is satisfied

SNIF should not have G

ratings or higher (G, H,

I..)

Even for those that are

closed, but systemic,

may decide to prompt

special term and

condition and probing

- Lender Narrative

(Exhibit: 01-02:

Operation of

Facility – State

Surveys)

- State Licensing

Inspection

Reports (Exhibit:

09-10)

-Corrective

Action Plan and

State satisfaction

letters

-Medicare.gov

No, findings -

Move on

Yes, findings,

letter and plan justified.

(State has issued letter

approving corrections/plan.

Contact State as needed.)

Move on

Open findings with no

plan - Contact lender for

plan and copy of letter from

State

E10 Evaluate

Sufficiency

of Lease

Payment

Is the lease

payment sufficient

to provide debt

coverage after the

costs of the

mortgage?

Cost of the mortgage

includes principal

interest, MIP, real estate

taxes, insurance

premiums,

Replacement reserves

and any other costs

required by HUD

- Lender Narrative

(Exhibit: 01-02:

Operation of

Facility –

Operating Lease)

- Operating Lease

(Exhibit: 05-11)

- Firm

Commitment (01-

04: Condition 1, 4)

Yes, Move on

No, special condition

required in firm commitment

http://www.medicare.gov/Default.asp








- HUD-92264-HCF

(Exhibits: 01-3A:

E3, E40-41, E38,

E46)

-HUD-92438

(Exhibit: 01-03D)

E11 Do Review 6

year PLI

claims

history

Are there any

patterns or

significant claims?

Ignore anything under

$35,000

This is about

PROFESSIONAL LIABILITY

(PL)—claims history

might include items not

considered PL

- Lender Narrative

(Exhibit: 01-02:

Insurance –

Professional

Liability Insurance

– Q2-5)

- Loss History

(Exhibit: 10-03)

- Potential Claims

Certification

(Exhibit: 10-04)

Yes, significant,

however lender

addressed

satisfactory - Move

on

Yes, significant

however lender did

not address

satisfactory -

Consult with

mortgage credit

and if needed,

contact lender for

resolution

No, patterns or

significant claims-- Move on








E12 Review

adequacy

of PLI

coverage

Is coverage

adequate to meet

past and potential

claims?

The minimum PLI

coverage is $1M per

occurrence and $3M

aggregate (w/

maximum $100K

deductible)

If operator has

numerous PL claims

made in past 6 years

($X> $35K) pending or

potential, critically

review UW narrative

and analysis of

anticipated claims

- Lender Narrative

(Exhibit: 01-02:

Insurance –

Professional

Liability Insurance

– Q2-5)

- Loss History

(Exhibit: 10-03)

- Potential Claims

Certification

(Exhibit: 10-04)

Yes, Move on

No, Consult with HUD Asset

Manager and/or lender to

confirm and resolve

E13 Review

adequacy

of PLI

coverage

If the current policy

provides ―per

occurrence‖

coverage, has the

operation been

cover by ―per

occurrence‖

coverage for the

entire statute of

limitations period?


provides ―claims

made‖ coverage,

does the current

ACORD show a

―retroactive date‖

covering the entire

statute of limitations

―Per Occurrence‖

coverage means that

a claim is covered as

long as the incident

occurred while the

policy was in affect,

regardless of the claim

date.

The term of the PLI must

provide coverage for

current operations

through the expected

loan closing date, and

all past operations

during the applicable

statute(s) of limitation

period(s).

- Lender Narrative

(Exhibit: 01-02:

Insurance –

Professional

Liability Insurance

– Summary and

Q6)

- Evidence of PLI

coverage for

statute of

limitations period

(Exhibit: 10-05)

-Statute of

Limitations

website:

link

Yes, Email

approval to Legal


Mortgage Credit Analyst and

notify lender

http://www.edgarsnyder.com/statute-limitations/index.html








period? ―Claims Made‖

coverage means that

a claim is covered only

if the claim is made

during the policy

period, regardless of

the date of the

incident.

E14 Review

insurance

rating of

carrier

Is rating of

insurance carrier

acceptable?

Insurance company

must be rated by AM

Best ―B++‖.

Or if carrier is a Risk

Retention Group, it

must be rated by A.M.

Best ―B++‖ or better, or

by Demotech at ―A‖ or

better.

- Lender Narrative

(Exhibit: 01-02:

Insurance –

Professional

Liability Insurance

– Summary)

- Evidence of

Insurer‘s Rating

(Exhibit: 10-07)

AM Best link

Demotech link

Yes, Move on

No, HUD Mortgage Credit

Analyst consulted to confirm

rating If rating of insurer

verified less than

acceptable contact lender

(this may stop the deal)

E15 Verify Insurance

carrier/provider is

licensed or

authorized ―surplus

lines carrier” in the

state where the

subject property is

located

Caution: The broker is

not the insurance

carrier.

Caution: There may be

more than one

insurance carrier on the

ACORD certificate.

Select the one which is

providing the PLI policy.

Most insurance

information can be

found on a States

-Lender Narrative

(Exhibit: 01-02:

Insurance –

Professional

Liability Insurance

-Summary)

-Evidence of PLI

coverage for

statute of

limitations period

(Exhibit: 10-05)

Yes, Move on

No, They are not

authorized in the State

where the project is located

- consult with MC. If advised

by MC, contact lender .

http://www3.ambest.com/ratings/

http://www.demotech.com/








Insurance Commission

website. (Search for

States Insurance

Commissioner)

Surplus Lines of

Insurance Information

for Region 10 States.

Surplus Line Insurance

Carriers are not

licensed in the States

but are authorized to

do business in the

State.

Washington: Call the

Surplus Line Association

of Washington at 206-

682-3409 or Ken Coons

with the State of

Washington Insurance

Commission at 206-464-

5311. Ask if the

Insurance Carrier has

permission to do

business in the state.

WA website link

Surplus line broker and

premium finance

licensing data is not

available on this

website.

Oregon: link

-State Insurance

Commission

https://fortress.wa.gov/oic/laa/LAAGeneralInfo.aspx#IMPORTANTSLPF

http://www.insurance.oregon.gov/insurer/financial_regulation/surplus_lines/surplus_lines.html








Idaho: link

Alaska: AK 2008 link

Single-Asset Entity with no parent company, Skip Section F.

Section F: Credit Worthiness/Character of the Owner/Operator facility Operator/Parent This section NA if there is a single-entity, non-owner operated (separate management agent) parent

Objective 3) Borrower and Operator Credit Worthiness (Compliance with Business Agreements)

Step Activity Key Point Source Document Yes No Comments

F1 Do Identify all the

facilities that are

operated by the

Parent company

Does it appear that

the parent company

has significant

financial strength to

carry the child/

children?

This is critical because

the financial strength

or instability of the

parent has a direct

effect on the

operator! If it

appears that the

parent might weaken

the subject facility

and it is of concern.

- Lender Narrative (Exhibit:

01-02: Parent of Operator)

- Schedule of Facilities

Owned, Operated, or

Managed (Exhibit: 06-03B)

- Financial Statements

(Exhibits: 06-07 through 06-

10)

Yes, Move on

No, it is not clear if

parent has other facilities

- contact lender

No, parent company

does not appear to have

requisite financial

strength -

If necessary consult with

mortgage credit—

contact lender

http://www.doi.idaho.gov/company/surpluslinesinsurer.aspx

http://www.dced.state.ak.us/ins/bulletins/B08-02.pdf








F2 Do Check SP Score. Is it

―A‖ or Greater.

If SP has rated the

Parent as an ―A‖ they

are low risk and HUD

will consider the

parent company

acceptable without

further review.

- Credit Report


01-02: Parent of Operator

- Credit History)

Yes, SP score

―A‖ or above—

Move on to

Section G

No, SP score < ―A‖

then continue to

complete the rest of

section F

Notes:



F3 Review Lender‘s

discussion of credit

ratings below SP ―A‖

for acceptability

If rating is not at an

acceptable level to

skip section F Lender

should discuss rating.

- Credit Report



- Credit History)

Yes, Credit rating

has been

acceptably

discussed by

Lender – Move On

No, Credit rating has not

been acceptably

discussed by Lender –

Contact Lender

F4 Do

Check that the

parent company has

acceptable

payment history and

patterns?

Check that Accounts

Payable (AP)< 60

days

Check Credit Report

for payment history

Looking for parent‘s

history of significant

untimely payments.



Credit History)


06-07) and Aging of

Accounts Payable

- Credit Report (Exhibit: 06-

06)

Yes, AP aging <

60 days & credit

report shows no

significant

derogatory

payment issues—

Move on

No, AP aging > 60

days or credit report

showed significant

derogatory issues, but

lender provided

acceptable discussion

and justification - Move

on

No, AP > 60 days or credit

report showed significant

derogatory issues with no








acceptable discussion by

lender - contact lender

F5 Check for

Credit History

Other

Business

Concerns**

Does the

Underwriting

Narrative identify any

other business

concerns involving

pending judgments,

legal actions or suits

or bankruptcy claims

as found through a

10% sampling of

businesses noted on

the credit report.

These items must be

appropriately

resolved and

documented


01-02): Operator /Parent

Exhibit: 06-6B; Q1-2

-Certification (Exhibit: 06-

05 Part II for Operator)-

-Credit Reports – Exhibit:

06-06B for Operator

Yes--Consult

with HUD

Mortgage Credit

Analyst (MC) to

determine if

lender addressed

in an appropriate

manner. MC will

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected

No-Move On

Notes:

**If we are accepting the parent operator based

on an S&P rating then a review of other business

concerns would not be necessary.








F6 Do Evaluate cash flow

for financial

condition by

reviewing Profit and

Loss statement (P&L)

for cash flow. Is cash

flow positive?





10)

Yes, Positive

cash flow. Move

On

No, Negative cash

flow was acceptably

discussed and justified by

the lender-- Move On

No, Negative cash

flow was not acceptably


the lender-- Obtain

explanation from the

lender.

F7 Do Evaluate net working

capital (working

capital minus

restricted cash--i.e.

tenant security

deposits, garnished

wages, restricted

savings account).

Use net amount and

the quick ratio to

evaluate.

Working capital is

current assets less

current liabilities.

Quick ratio = Current

assets less restricted

current assets divided

by current liabilities





10)

Yes, Quick ratio

> 1.05--Move On

No, Quick Ratio <1.05

was acceptably


the Lender--

Move On

No, Quick Ratio <1.05

was not acceptably


the lender - Contact the

lender

Section G: Credit Worthiness/Character of Management Agent

This section NA if there is an Operator/Lessee

Objective 3) Management Agent Credit Worthiness (Compliance with Business Agreements)


G1 Check Confirm the facility is not

leased and the license

is in the name of the

Determines if the

management agent

directly controls the


01-02: Program eligibility

Yes, the facility

is not leased. A

detailed review of

No, license is not in

name of Management

Agent – Request








management agent operation of the facility

Criteria to determine

whether agent directly

controls the operations:

*provides patient care;

*holds the license;

*controls books to the

extent that the agent

can enter into an

accounts receivable

financing arrangement.

-Licensing/Certificate of

Needs/Keys Amendment)

-Licenses (Exhibit: 08-02)

the Management

Agent is required.

A Management

Agent will be

required to sign a

certification.

Yes, the

Management

Agent contracts

in its own name

with the residents.

A detailed review

of the

Management

Agent is required.

A Management

Agent will be

required to sign a

certification.

Yes, the

Management

agent is named

on the license for

the facility. A

detailed review of

the Management

Agent is required.

A Management

Agent will be

required to sign a

certification.

Special

Modification from Lender








Condition: If the

Management

Agent contracts

in its own name

with the residents

or is named on

the license for the

facility, at closing

the Management

Agent will be

required to sign

an Operator

Regulatory

Agreement and a

Security

Agreement

acceptable to

Hub.

G2 Do evaluate

Level of

Experience

Review lender narrative

and management

agent resume

determining the level of

experience. Are they

qualified to manage this

type of facility?

Make sure they have

managed

Similar/Relevant

properties minimum 3

years.

Gain good

understanding of the

background and

experience of the key

player: (i.e. principals).

This gives you an

indication of the

management agent‘s

team stability and

experience.

Lender Narrative (Exhibit:

01-02: Management

Agent experience/

qualifications) resume

(Exhibit: 07-03) Schedule

of facilities owned and/or

managed (Exhibit: 07-03)

Yes,--

experienced –

Move on


Asset Manager to

determine acceptability

of Management Agents

experience is less than 3

years.








G3 Do Evaluate REAC (Real

Estate Assessment

Center) Rating for

property(s) owned and

managed.

Have any owned or

managed properties

received a score of less

than 80?

Identifies concerns of

the agent‘s

management of their

properties


01-02): Management

Agent

Experience/Qualifications)

-Past and Present

Performance (Exhibits: 07-

03, 07-05)

Yes, The REAC

score for the

property(s) is(are)

less than 80 –

consult with Asset

Manager to

determine

reasons for score,

if a work out plan

for correction has

been

implemented and

the acceptability

of the

management

agent.

No, None of the

property(s) received a

REAC score less than 80 –

Move on

G4 Do Evaluate Management

Occupancy Review

(MOR) Rating for

property(s) owned and

managed

Have any owned or

managed properties

received a rating of

unsatisfactory

Identifies concerns of

the agent‘s

management of their

properties

-Lender Narrative(Exhibit:

01-02): Management

Agent

Experience/Qualifications)

-Past and Present

Performance (Exhibits: 07-

03, 07-05)

Yes, An MOR

rating on the

property(s) is(are)

rated

unsatisfactorily –

consult with Asset

Manager to

determine

reasons for rating,

if a work out plan

for correction has

been

implemented and

the acceptability

of the

management

agent.

No, None of the

property(s) received an

unsatisfactory rating -

Move on

G5 Check

Significant

Does the Lender‘s

Underwriting Narrative

These items must be

resolve and


01-02: Management

Yes, to any-

Consult with HUD

No, Move on








Credit Issues and Super Certifications

or Credit Reports for the

Management Agent

identify any of the

following:

a) Delinquent

Federal Debt;

b) Judgments;

c) Suits or legal

actions;

d) Bankruptcies;

e) Tax liens?

documented.

Cannot issue firm

commitment with

outstanding issues.

Credit History) Mortgage Credit

Analyst (MC) to

determine if

Lender addressed

in an appropriate

manner. MC to

advise about

acceptability OR

outline

requirements for

appropriate

resolution. Work

with MC until

resolved or

rejected.

G6 Do evaluate

credit score

Based on the credit

payment delinquency

risk score provided by

the credit agency, does

the score show that the

Management Agent is

not a high risk?

Credit reports: At a

minimum, an

acceptable

commercial credit

report must include the

following: (a. public

filings that includes suits,

liens, judgments,

bankruptcies & federal

debt; (b. UCC filings; (c.

credit payment history;

(d. industry standards

showing how the

facility compares in the

areas of financial stress

& payment trends; and

a credit payment

trends; and (e. a credit

payment delinquency

risk score over a 12-

-Lender Narrative

(Exhibit: 01-02:

Management Agent-

Credit History))

-Credit Reports (Exhibit:

07-05)

Yes, Move on

Score exceeds or

derogatory issues

reviewed and

justified

satisfactorily

No, Consult HUD

Mortgage Credit Analyst

(MC) to advise about

acceptability OR outline

requirements for

appropriate resolution.

Work with MC until

resolved or rejected.

Notes:










month period.

Scores determined to

be a high risk, must be

thoroughly explained

by the lender.

Justification of late

payments, charge offs,

etc. are required if the

score is below, and it is

justified satisfactorily,

continue

G7 Do Evaluate

Financial

Stability

Has the lender

appropriately

addressed any material

accounts payable (AP)

over 60 days?


excess of $2,500

Aging of Accounts

payable is measure of

an entity‘s current and

past payment history


01-02:

Operator – Financial

Statements – Q4)



Accounts Payable

Yes, Move on

N/A, No

Material AP > 60

days—Move on

No, Consult with

lender to obtain

satisfactory explanation








G8 Do Evaluate

Financial

Stability

Has the lender

appropriately

addressed any material

accounts receivable

(AR) over 60 days?


excess of $2,500

Aging of Accounts

receivable is measure

of an entity‘s ability to

collect

Check to ensure that all

governmental

reimbursements over 60

days are within

appropriate time

frames for that

governmental agency.

See lender‘s narrative

for backup


01-02:

Operator – Financial

Statements – Q5)



Accounts Payable

Yes, Move on

N/A, No

Material AR > 60

days—Move on

No, Consult with

lender to obtain

satisfactory explanation

G9 Evaluate cash

flow for

financial

condition

Is the Net Operating

Income (NOI) negative

or declining for the year-

to-date and last 3 fiscal

years (as applicable)?

If negative NOI, review

lender narrative to

assess justification

NOI is before

depreciation and

amortization and lease

payment

In cases where there is

no operator or the

operator is newly

formed, review the

Financial Statements (P

and L/Income

Statement) of the

Mortgagor.


01-02: Operator –

Financial Statements – Q3)

- Operator Financial

Statements (Exhibits: 05-07

/ 05-08 / 05-09 / 05-10)

Yes

Justified—

Move on

Not

justified—

further review

and

explanation

required from

lender

No, Move on








G10 Check

Management

Agreement

Does the Agreement

meet HUD requirements

including;

A) Description of

services and fees

B) Description of

computation and

payment

C) Description of

HUD‘s right to

require termination

of agent and/or

take possession of

the property

D) Statement as to

HUD‘s rights and

requirements

prevailing

E) Statement as to all

accounts,

investments and

records turned over

within 30-days after

termination

F) Statement that

―hold harmless‖

clause is prohibited

G) Description of

contract‘s length of

term

A legal document

agreement between

the owner and

management agent

that protects the two

parties and ensures

HUD‘s interests in the

property, its assets and

its operation are

protected

-Lender Narrative

(Exhibit: 01-02:

Management

Agent

-Management

Agreement (Exhibit: 07-

02))

Yes, Move on

No, Contact Lender









G11 Check Check the Lender

Narrative for review of

the

Owner/Management

Agent‘s Agreement

form HUD-9839-B

Document provides

information regarding

management fee

percentage and term

of the owner/agent

agreement that

matches the ones

noted in the

Management

Agreement.

-Lender Narrative

(Exhibit: 01-02)

-Management Agent‘s


01B-9839))

Yes, Move on

No, Contact Lender

G12 Do

Check

The Lender Narrative for

review of the

Management Entity

Profile form HUD-9832

The document provides

information about the

management agent

entity, principals,

including experience

and property

management and

operating procedures


01-02)

-Management Agent‘s


01A-9832))

Yes, Move on

No, Contact Lender

G13 Do Review 6

year PLI

claims history

Are there any patterns

or significant claims?

Ignore anything under

$35,000

This is about

PROFESSIONAL LIABILITY

(PL)—claims history

might include items not

considered PL


01-02: Insurance –

Professional Liability

Insurance – Q2-5)

- Loss History (Exhibit: 10-

03)

- Potential Claims

Certification (Exhibit: 10-

04)

Yes, significant,

however lender

addressed

satisfactory -

Move on

Yes, significant

however lender

did not address

satisfactory -

Consult with

mortgage credit

and if needed,

No, patterns or

significant claims-- Move

on








contact lender for

resolution

G14 Review

adequacy of

PLI coverage

Is coverage adequate

to meet past and

potential claims?

The minimum PLI

coverage is $1M per

occurrence and $3M

aggregate (w/

maximum $100K

deductible)

If operator has

numerous PL claims

made in past 6 years

($X> $35K) pending or

potential, critically

review UW narrative

and analysis of

anticipated claims




Insurance – Q2-5)

- Loss History (Exhibit: 10-

03)

- Potential Claims

Certification (Exhibit: 10-

04)

Yes, Move on


Asset Manager and/or

lender to confirm and

resolve

G15 Review

adequacy of

PLI coverage


provides ―per

occurrence‖ coverage,

has the operation been

cover by ―per

occurrence‖ coverage

for the entire statute of

limitations period?


provides ―claims made‖

coverage, does the

current ACORD show a

―retroactive date‖

covering the entire

statute of limitations

period?

―Per Occurrence‖

coverage means that a

claim is covered as

long as the incident

occurred while the

policy was in affect,

regardless of the claim

date.

The term of the PLI must

provide coverage for

current operations

through the expected

loan closing date, and

all past operations

during the applicable

statute(s) of limitation




Insurance – Summary and

Q6)

- Evidence of PLI

coverage for statute of

limitations period (Exhibit:

10-05)

-Statute of Limitations

website:

link

Yes, Email

approval to Legal


Mortgage Credit Analyst

and notify lender

http://www.edgarsnyder.com/statute-limitations/index.html








period(s).

―Claims Made‖

coverage means that a

claim is covered only if

the claim is made

during the policy

period, regardless of

the date of the

incident.







Section H: Firm Commitment


H1 Do

Do

Do

Check

Collect the original

HUD 4128 signed by

the HUD Appraiser.

Review 4128 findings,

and

recommendations

Route for signature to

Program Center

Director with your

recommendation

Is the project

recommended for

approval?

This must be

completed prior to

firm commitment.

All 4128 conditions

must be resolved

prior to issuance of

firm commitment,

with exception of O&

M plan if there is

good cause.

If underwriter does

not concur with

appraiser‘s finding,

consult with

supervisor prior to

routing to Director.

Signatures required

on 4128 include: HUD

appraiser, HUD

underwriter, program

center director and, if

project exceeds 200

units the regional

environmental

officer.

- Phase 1 (Exhibit: 02-02)

- Phase 2 (Exhibit: 02-02, if

applicable)


01-02: Environmental)

-HUD-4128

Yes, Move on

Yes, ―with

conditions‖ -Notify

lender of the

conditions. The

lender must

resolve prior to

issuance of firm

No, Immediately, notify

lender of environmental

findings and advise the

project must be rejected

unless resolved.

H2 Check 1) Have comments

have been received

from Legal?

Prior to issuance of

Firm Commitment

-Legal‘s review of leases

and organizational

documents for

commercial and

subordination issues

Yes, Review

No, Retrieve

comments from HUD

legal








2) Has legal

requested changes

to leases and/or

organizational

documents?

Yes, Review

requested

changes and

insert as special

condition to Firm

Commitment

No, insert standard

condition requiring the

lease and organizational

documents to conform to

HUD standards.

H3 Check Make certain that all

required ‗to do‘s‘

have been

completed and

returned

Typical things include

all responses from

Technicians and/or

Lender

Yes, Move on No, Follow up with

outstanding ‗to do‘s

H4 Compare Draft Firm

Commitment

submitted by lender

to HUD‘s master

template

Is the firm

commitment

consistent with

HUD-92264-HCF

HUD-92264A

Critical/Non-

Critical/Owner-

elective Repairs?

If there are variances

in the HUD-92264-HCF

or HUD-92264A, return

to lender for

correction. Other

variances can be

corrected by HUD.

UW will verify lender‘s

numbers (maximum

mortgage amount,

P&I, etc.)

- Draft Firm Commitment

submitted by Lender

(Exhibit: 01-04).

- HUD-92264-HCF (Exhibit:

01-03A)

- HUD-92264-A (Exhibit: 01-

03C)

- HUD-92438 (Exhibit: 01-

03D)

Yes, there are

variances

between the Firm

Commitment and

HUD-92264-HCF

and/or HUD-

92264-A - Return

to lender for

correction**

Yes, there are

variances, but not

with the HUD-

92264-HCF and/or

HUD-92264-A -

HUD UW can

make correction

to the Firm

No, Move on

If the maximum mortgage amount was reduced,

a portion of the exam fee may be refunded.

Advise lender. Sample language is a follows:

A fee of $__________ was submitted/collected

with the firm commitment application. Due to a

change in the maximum mortgage amount, the

actual fee due is $__________. A request for a

refund of $________ can be submitted on or after

the day of closing.








Commitment

Yes, There are

Account

Receivable (AR)

Special Conditions

- Include AR

special conditions

from AR Punch List

H5 Do

Do

Draft HUD

Underwriter Summary

for loan committee

Obtain signature

from Underwriter

Supervisor.

-HUD Underwriting

Summary boiler plate

posted on Sharepoint

H6 Do

Do

Do

Schedule loan

Committee meeting

Send copy of HUD

Underwriter Summary

to Loan Committee

members (or those

acting for members).

Set up conference

call (800 #) and

emails call in detail to

Committee.

Email should establish

a time the following

day that committee

will meet via conf.

call. Send via

Outlook scheduler so

that Committee

members can

confirm attendance.

Loan Committee to

meet and reach

decision within 1 day

of HUD Underwriter

Summary signed off

by Supervisor.

Distribution of

underwriting

documents

-HUD Loan Committee

Punch List

Committee

approves the

issuance of the

firm commitment.

OIHCS

Designee/HUD

Director signs:

Firm Commitment

HUD-2453MM

(signs 2 originals)

HUD-92264

HUD-92264A

HUD-92329

HUD-2447

HUD-9839(B) if

applicable

Loan Committee does

not approve firm

commitment application.

Firm commitment

application is rejected.

Lender is advised.








Lender:

One original HUD-

2453MM*

Copies of the:

HUD-92264

HUD-92264A

HUD-92329

HUD-2447

HUD-9839A,B,C if

applicable

HUD:

One original HUD-

2453MM

Retains original:

HUD-92264

HUD-92264A

HUD-92329

HUD-2447

HUD-9839(B) if

applicable

Mortgagor and

Mortgagee must sign

and return to HUD.

H7 Do

Schedule Closing

Once the Firm

Commitment is

issued, the HUD

Closing Attorney will

recommend two (2)

closing dates to the

Lender and Lender

Attorney via email.

Lender and Lender

Attorney will confirm

- HUD Underwriter Closing

Punch List

Yes, HUD

Closing Attorney

has sent email to

Lender and

Lender Attorney

two (2) possible

closing dates.

Yes, Lender

and Lender

Attorney have

No, HUD Closing

Attorney has not sent

email with

recommended closing

dates. Follow-up with

HUD Closing Attorney.

No, Closing date has

not been set. Follow-up

with HUD Closing

Attorney.

Date email to Lender and Lender Attorney sent:

Date of confirmed/scheduled closing:








date with HUD

Closing Attorney and

in conjunction with

the HUD Underwriter.

confirmed and

closing date has

been set

Hud Underwriting Punch List

Documents

Transcript of Hud Underwriting Punch List