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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   March 2013

Get Your Deals Healthy

Work with HUD programs to fund senior-housing and health-care properties

In the past few years, many govern- ment-backed loan programs have picked up momentum. Two programs — Section 232 Mortgage Insurance for Residential Care Facilities and Section 242 Mortgage Insurance for Hospitals — run by the U.S. Department of Housing and Urban Development’s (HUD’s) Office of Healthcare Programs provide a prime example of the increasing popularity of government loans. 

The Federal Housing Administration (FHA), through the Section 232 program, provides mortgage insurance for residential care facilities like assisted-living facilities, nursing homes, intermediate-care facilities and board-and-care homes. The Section 242 program provides mortgage insurance for acute-care hospital facilities ranging from large teaching institutions to small, rural critical-access hospitals.

Commercial mortgage brokers who want to extend their business into securing financing for health-care properties must be fully familiar with these two programs. They also should understand the specifics of working with each of them and have an adequate knowledge of HUD requirements. This will help them navigate the application and underwriting processes, and ensure that their clients’ deals are funded within a reasonable period. 

LEAN processing

With interest rates at historically low levels, there has been a rush of health-care borrowers seeking to refinance at this unique stage of the business cycle. For those potential borrowers, it’s reassuring to know that HUD apparently is willing to take tangible steps to improve product production as demand continues to rise.

A combination of higher demand and better processing made this past fiscal year a record one for the Section 232 program, with an impressive 706 senior-housing loans insured by the FHA for a total of nearly $5.5 billion. That is an increase of 66 percent over fiscal-year 2011’s record of nearly $3.3 billion.

In response to the substantial demand for these health-care programs, HUD had to streamline its loan-processing procedures and instituted the LEAN process in 2008. Today, the organization’s operations are not only centralized, but they also are being managed with an entrepreneurial flair.

For example, HUD has streamlined its application process and improved the communication exchanges between applicants and underwriters — precisely what the LEAN management concept is supposed to do. The intent has been to make the program more competitive with conventional lenders, an idea that has been progressing nicely.

Some of the steps that HUD has introduced include the following:

  • Changing or moderating some of its requirements
  • Introducing computer dashboards: Borrowers can track and access information on loans as applications wind their way through the approval process.
  • Bringing in outside help to deal with long queues: When a stubborn backlog of orders was backing up program queues this past year, HUD looked outside of the government for help and brought in a commercial underwriting company to help whittle down the orders pile. As a result, it cut the processing time to nearly  90 days, and long waiting periods now seem a thing of the past. 

HUD certainly got credit for these efforts. Previously referred to as a last-resort lender, HUD today is the preferred source for the right borrower.

Qualifying clients

It is the responsibility of commercial mortgage brokers, however, to understand what to look for in their clients to determine whether or not they qualify. In a nutshell, these programs are good for clients who want nonrecourse, high loan-to-value financing with a low rate and a longer-term holding horizon.

To capitalize on the increasing demand for these programs and to extend their business into senior-housing and health-care properties, commercial mortgage brokers must be aware that working with these loans contains several challenges. For example, real estate value is only one of several factors considered by HUD in its underwriting process. Loan guarantees primarily are extended based on an evaluation of how the business is likely to perform over time. Brokers who try to become specialists in health-care properties, therefore, must focus on all the factors that impact the health-care business’s economic health.

This in-depth knowledge may take years to gain, but when leading clients through these deals, it is essential for making the right decisions and finding the right financing sources. It is possible, however, for commercial mortgage brokers to absorb enough of the basics to effectively initiate a program aimed at intelligently approaching and qualifying prospects. Brokers don’t have to possess the knowledge of an underwriter, assessor or analyst to effectively take on this role. 

• • •

For years, the long lead times and lengthy processes for HUD loan programs were discouraging factors for borrowers and lenders alike. As hurdles are being tackled, however, these government-backed programs are gaining in popularity and providing viable lending opportunities for health-care and senior-housing projects. With that in mind, commercial mortgage brokers must shake off old impressions and capitalize on the growing opportunities at hand.


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