Benefits of
the new Lean
Processing: |
HUD recently announced a major change to the HUD 232 program. HUD 232 loans will now be subject to the LEAN program. Effective September 1st, HUD will use LEAN submmission process exclusively.
- Responsibillity for 232 processing is now under the control of HUD’s Offices of Insured Healthcare Facilities (“OIHCF”). Formerly, the Office of Multifamily Housing had the repsonsibility for the 232 program.
- The objective of LEAN is to approve and close the loan quickly. The time from application submission to closing will be 30 – 60 days. The shortened time frame is possible because legal review will take place simultaneously with the application review. Under MAP, HUD had 60 days from application submission to approve a loan and the closing followed sometime thereafter.
- LEAN is currently in effect for acquisition and refinance loans. Effective October 1st 2008, LEAN processing will be available for new construction and substantial rehabilitation loans.
- HUD 232 valuation methodology is now the same as that used by the rest of the senior housing/healthcare finance industry. HUD underwriters will now underwrite with a management fee expense and will not make downward adjustments to NOI for Proprietary Earnings.
- Valuation will include market replacement reserves and a market management fee.
- HUD no longer requires a market study separate from the appraisal for acquisition/refinance loans. This represents an $8,000 – $12,000 savings in third party costs.
- Low LTV and high DSCR loan applications, which present less lender risk, will receive the most expedited review procedures.
- HUD LTV and DSCR sizing restraints remain unchanged.
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Overview of the Program: |
This loan provides non-recourse assumable loans to refinance or purchase existing assisted living, board and care, and intermediate or skilled nursing care facilities.
Loan amount for the refinance or purchase of existing properties is the lesser of
(a) 85% of market value;
(b) A mortgage amount supported by a DSC of 1.1765 (85% of NOI);
(c) 100% of the transaction cost for a refinance, and 85% of the transaction cost for a purchase transaction. Recognizable transaction costs include repairs, initial replacement reserves, third party reports, closing costs, along with eligible existing indebtedness or purchase price. Qualified non-profit borrowers can finance up to 90% of value and/or cost.
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Program Highlights: |
- Loan term: a maximum of 35 years, or 75% of the remaining economic useful life.
- Debt service coverage of 1.1765.
- Maximum processing occupancy: 90% - 95%.
- Underwritten on current income and expenses.
- Property must be three or more years old since final certificate of occupancy.
- Commercial space cannot exceed 20% of net rentable area or 20% of gross income.
- Escrows for property taxes, insurance, MIP, and replacement reserves for realty and equipment.
- Independent living units cannot exceed 25% of total units of the project.
- In skilled nursing facilities, the underwriting will likely assume Medicaid pay rates for an appropriate percentage of units or beds.
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Costs of Financing: |
- LF processing fee is $5,000.
- The client must pay for all third party reports, which include a phase I environmental analysis, a full appraisal, and our contracted architectural PCNA analysis. Funds must be remitted to LF and these contractors are engaged and paid by LF directly.
- Financing and permanent placement fees of up to 3.5% are based on final loan amount, due upon commitment and payable from mortgage proceeds at closing.
- Annual Mortgage Insurance Premium (MIP) is 1.0% at closing (one year pre-paid) and 0.50% annually thereafter.
- HUD application fee is 0.3% of mortgage amount due at the time of submission of the Firm Application.
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