FHA 232 LEAN Lender - FHA 242 - FHA 223 F Fannie Mae Freddie Mac Healthcare - FHA Multifamily

Weekly Update, April 10, 2009/U.S. Department of Housing and Urban Development (HUD)

2011-05-13T10:50:00.000-07:00

Weekly Update, April 10, 2009/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

2011-04-13T04:36:00.001-07:00

FHA 232 LEAN

Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

2011-04-13T04:36:00.000-07:00

FHA 232 LEAN

Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Previous E-Newsletters/U.S. Department of Housing and Urban Development (HUD)

2011-04-13T04:11:00.000-07:00

The Link to FHA 232 LEAN news letters and program changes

Previous E-Newsletters/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Letter

2011-03-24T12:40:00.000-07:00

LOW INCOME HOUSING TAX CREDITS AND SECTION 232 NEW CONSTRUCTION/SUBSTANTIAL REHABILITATION PROJECTS:

Provided the Firm Applications are submitted in a timely manner, HUD reserves the right to adjust its Other Queue to give preference to processing new construction and substantial rehabilitation Section 232’s that include Low Income Housing Tax Credits (LIHTC) to meet placed in service deadlines on specific projects. We encourage lenders to submit the Firm Applications on these projects in such a manner that will allow as much time as possible for HUD to act on the applications – including reviewing whether our 2 Stage Firm Application process will provide for such.

CHANGES TO OUR PROCEDURE FOR HANDLING SEASONING OF DEBT:

The April 10, 2009 Email Blast discussed our definition of Eligible Debt and the two and five year seasoning rules. Although this language was silent on the date that the seasoning is based upon, we have consistently required that the two or five year period must have passed prior to the application being submitted (entering our queue). Because of the length of time that projects are spending in our queues, we are changing how we will handle this. Effective immediately, the two and five year time period will be based upon when a project is assigned to an OHP Underwriter (exits our queue). Lenders may choose to submit a project prior to the seasoning period expiring, however, if the project reaches the top of the queue prior to the debt being properly seasoned, the project will be placed on hold. Lenders submitting projects in such a manner must regularly monitor the project’s progression through the queue and contact a Workload Manager at HUD (prior to the project being assigned to an OHP Underwriter) if it becomes evident that the project will be assigned prior to the seasoning period expiring.

REFUNDS OF HUD APPLICATION FEE:

We understand that HUD is no longer issuing refund checks - all refunds are being handled by Direct Deposit. To accommodate this procedure, when requesting refunds in the future, please use the attached document as a template for your letter requesting the refund. This document will be posted to HUD.GOV in the future.

MANAGEMENT AGENT AND OPERATOR GRID:

Please see the attached grid. This document addresses HUD’s closing document requirements for operators and management agents to ensure that HUD has a valid security and regulatory interest in the project assets of the healthcare facility. Particularly of note, this grid addresses the document signing requirements of the operator and/or management agent for the operating lease, license, equipment, provider agreements, deposit accounts and facility repairs. This document will be posted to “Sample Closing Documents” on HUD.GOV in the future.

STALE DATE ON PHASE I ENVIRONMENTAL REPORTS:

We have been asked numerous times in the past few months to waive the stale date on Phase I Environmental Reports – listed in the endnotes on our Checklists. We have turned down all such requests as we are unable to waive this requirement.

CLOSING QUEUE:

We will soon be posting our closing queues to HUD.GOV. Until these are posted, please see the attached two spreadsheets, which list the projects in our closing queues. Projects will be assigned from the top to bottom of the spreadsheets. Currently we have three closing coordinators working on the non 223(a)(7) queue (one of these individuals concentrates on Insured Advances projects).

CLARIFICATION ON MINIMUM LEASE PAYMENTS:

During the closing of Section 232 loans, OHP and OGC have encountered confusion on the minimum lease payment required for closing documents and operating leases. For the actual leases, we are requiring that the annual lease payment be calculated using a minium of a 1.05 coverage ratio - annual principal + annual interest + annual mortgage insurance premium + annual reserve for replacement deposit + annual property and liability insurance + annual property taxes times a multiplier of 1.05. This minimum coverage level required for executed leases is different than the test measurement used in the 223 F Lender’s Narrative, which remains unchanged - it will continue at the 1.17 coverage level.

REVISED CONSTRUCTION SPECIFICATION TEMPLATE:

OHP will be following the revised construction specification template discussed in HUD Mortgagee Letter 2010-41 – see attached. All Firm Applications submitted to HUD on or after April 25, 2011, must use the new CSI MasterFormat 2010. Future revisions to our checklists and other documents posted to HUD.GOV will reflect this revised document.

CHANGES TO OUR STANDARD DOCUMENTS:

Please do not change Lean Approved exhibits posted on HUD.GOV. This includes, but is not limited to, submitting exhibits in MS Excel or QuattroPro when they are to be in original Word format, adding or subtracting fields of information in current documents, and changing language in Firm Commitments. When these changes are made it takes Underwriters and Closing Coordinators extra time to identify and mitigate these unapproved changes and is contrary to the standardization required under Lean. We will be following the February 19, 2010 Email Blast and requesting a revision to the Firm Application when this situation is present.

In addition, if a section of the Lender Narrative or an exhibit is not applicable to your project, please note that it is “not applicable” and explain why you believe this is not applicable. No sections are to be left blank or deleted from the Template. Your cooperation with this request will help us process your application more quickly.

MARKET INTEREST RATE ABOVE RATE USED IN SECTION 223(A)(7) APPLICATIONS:

Given the recent rise in interest rates, interest rates proposed in applications under Lean Section 223(a)(7) may not longer be achievable. Please advise your assigned OHP Underwriter if this is the case so you can work to ensure your application is consistently updated throughout to reflect a more accurate interest rate at the time of Firm Commitment issuance. For applications still in the queue that are no longer feasible due to interest rate hikes, lenders can opt to withdraw their application and have the application fee returned.

Need to Reference Previous LEAN 232 Updates?

Previous E-Newsletters (Email Updates) can be found at:

http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration/healthcare_facilities/section_232/lean_processing_page/underwriting_guidance_home_page/previous_e_newsletters

FHA 232/223(f) LEAN Rates

2009-09-26T10:12:00.000-07:00

The FHA 232/223(f) loan rates have been around 5% plus MIP. New Construction Rates are closer to 6% plus MIP.

We are seeing more memory care facility new construction requests for FHA 232 LEAN new construction.

FHA 223(f) Waivers New Construction Take-outs Allowed

2009-08-05T14:22:00.001-07:00

Effective now properties can request a waiver of the three year rule and refinance as soon as they receive a Certificate of Occupancy.

For more details see:http://www.kendallrealtyadvisors.com/FHA223F.html

Apartment and Healthcare Loans - Status April 24 2009

2009-04-24T11:15:00.000-07:00

The State of Apartment and Healthcare Finance - by Kendall Realty Advisors, Scott Kendall VP-CFO

FHA 223(f) Rates in 5.25% to 5.75% range including MIP
Large Cash out Requests are getting looked at very carefully. 1.17 to DSC
80% cash out loans (Maybe) 85% loans to purchase or up to 85% refinance no cash out.

Fannie Mae Freddie Mac Multifamily Rates about 5.5% 75% loan to value cash outs.

80% Purchase transactions. 1.25 to 1 DSC

FHA 221(d)(4) - Affordable Deals more likely to be approved. Market Rate Deals ONLY IN VERY STRONG MARKETS (ex: Downtown Chicago new construction not likely to be approved).

In conclusion, refinance money is available but large cash outs transactions will not be approved above 75% Fannie Mae 80% FHA (Kendall Opinion)

New Construction Waivers and 85% loans will be approved for stabilized recent construction transactions as part of the emergency waiver.

All in All apartment lending even with more conservative lending practices is in the best shape of commercial lending programs due to the three agency programs.

FHA 232 Lean The FHA 232 LEAN program is great for rehabilitation loans to meet new federal safety standards and for assisted living facilities.

FHA 242 Hospital Loans - Program much faster and streamlined. We are working on several transactions, the rates are low but higher than multifamily loan rates, since we can not use GNMA to provide a AAA rating.

New Lean Two Year Debt Rule

2009-04-10T15:59:00.001-07:00

Project debt that is less than 24 months old will need to be investigated and must meet the definition of “Eligible Debt” below (See Section Below) if it is to be used in the calculation of the cost to refinance. No investigation is needed on project debt that is at least 24 months old prior to using it in the calculation of the cost to refinance,provided the identity of interest described in the next sentence is not present,provided the identity of interest described in the next sentence is not present.

Definition of Eligible Debt: Project debt that meets any of the below definitions, may be included in the cost to refinance – there is no seasoning required.

1. Outstanding mortgage(s) incurred in connection with the construction or purchase of the project, or with capital improvements made to the property as confirmed by the current mortgagee – provided it can be demonstrated that there was no cash out to the mortgagor of the proposed FHA Insured loan or its principals. However, if the debt was incurred as a result of an identity of interest ** purchase, the debt is not considered eligible debt and must meet the seasoning requirements described herein. Furthermore, if the debt was incurred as a result of buying out a partner, the debt is not considered eligible debt and must meet the seasoning requirements above.

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 that substantially verifies 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,

Affordable Housing Transactions

2009-04-09T13:24:00.000-07:00

Kendall Realty Advisors specialize in affordable rental housing loans.

FHA, Fannie Mae and Freddie Mac National Affordable Housing Lenders.

Credit enhancement of tax-exempt bonds with FHA, Fannie Mae and Freddie Mac.

New construction loans with FHA,

NEW
Equity to close can be provided in Installment Payments for tax-credit transactions.

Non-profit 501(c)3 Apartment financing also available using FHA 223(f) and FHA 221(d)(4).

Kendall Calls Bottom on FHA GNMA Perm Rates

2009-04-02T13:09:00.000-07:00

Kendall Realty Advisors LLC

Last week when permanent rates hit 4.8% before MIP was the bottom for FHA rates.

"Those where the lowest rates for fha 223(f) and FHA 232 Refinance loans that I have seen in my twenty five years of originating FHA Multifamily loans." Kendall says,

"I am afraid that rates have no where but up to go, with the dollar and rate sell off that started today." I hope I am wrong. it would be great to be offering 35 year fixed rate loans at 4.65% including MIP but clients will just have to live with rates going back up to 5.5% based on the current rate action.

This is a strange market with Cap Rates going up Values going down while rates are at historic lows. It makes meeting 1.17 debt service coverage much easier but is resulting in deals being limited by 85% loan to value instead of the DSC requirements of the FHA 223(f) program.

LEAN 232 Pipeline as of March 20th, 2009

2009-03-29T23:46:00.000-07:00

FHA LEAN Update - Deals in progress and closed by FHA to Date
posted by Kendall Realty Advisors

FHA # Requests – Purchase/Refinance – 221

FHA # Requests – New Construction – 49

FHA # Requests – Section 223(a)(7) - 1

FHA # Requests – Section 241(a) – 2

FHA # Requests – Sub-Rehab – 3

FHA # Requests – Section 223(d) – 2

Applications In (not closed) – Purchase/Refinance – 40 shortly)

Applications In (not closed) – New Construction – 6

Applications In – Section 223(a)(7) – 1

Firm Commitments Issued – 29

Applications CLOSED –Purchase/Refinance – 14

Applications CLOSED – New Construction – 1 (5 pre-apps completed)

The “Sample Closing Documents (including AR Financing)” link has been broken into two links - “Accounts Receivable Financing Documents” and “Sample Closing Documents”.

The most current closing checklist has been added to each loan type under “Lender Tools – Construction and Closing”.

We are in the process of uploading legal closing punchlists for all of the loan types. These punchlists will be posted under “HUD Legal Counsel Tools” (for Original Section 232/223f) or under “HUD Tools – Construction and Closing” (for the other tabs).

The link for the Intergovernmental Review that is listed in the endnotes on the Firm Application checklists under New Construction, Substantial Rehabilitation, and Section 232/241(a) has been revised. This changed with the new Administration.

As a result of our Beta Test on our first Early Commencement, we have added to and revised the documents that now appear under “Early Commencement of Construction” and “Lender Tools”.

Apartment Refinance Loan

2009-03-26T09:56:00.000-07:00

Kendall Realty Advisors has all the active financing programs to refinance your apartment loan.

FHA 223(f) Apartment Refinance Loan

Fannie Mae Multifamily Apartment Refinance Loan

Freddie Mac Apartment Refinance Loan

We are aligned with CWCapital a leading national apartment and healthcare lender providing FHA, Fannie Mae and Freddie Mac Multifamily and Healthcare loans.

LEAN PIPELINE AND CLOSINGS

2009-03-18T07:58:00.000-07:00

LEAN 232 Pipeline as of March 6th, 2009
FHA # Requests – Purchase/Refinance – 208
FHA # Requests – New Construction – 41
FHA # Requests – Section 223(a)(7) - 1
FHA # Requests – Section 241(a) – 1
FHA # Requests – Sub-Rehab – 2
FHA # Requests – Section 223(d) – 2
Applications In – Purchase/Refinance –40 (with 18 more scheduled to come in shortly) Applications In – New Construction – 7
Applications In – Section 223(a)(7) – 1 Firm Commitments Issued – 18 Applications CLOSED –Purchase/Refinance – 9 Applications CLOSED –
New Construction – 1 closed - (4 pre-apps completed)

FHA 221D4 or FHA Section 221(d)(4) Loans

2009-03-10T06:03:00.000-07:00

The top apartment lending program available today is the FHA 221D4 program.

90% loan to cost

1.11 to 1 debt service coverage

40 years plus construction loan term

Non-recourse

Assumable

Check out the best lending program available today the FHA 221D4 new construction apartments.

Revised Guidance for Underwriting of LEAN 232 Loans for Assisted Living Projects:

2009-02-06T18:38:00.000-08:00

Given the difficult economic and fiscal environment nationally, the Department is requesting that HUD approved Mortgagees exercise caution in underwriting loans under the LEAN Section 232 programs for new construction and refinance transactions for assisted living facilities. For all Assisted Living Project LEAN mortgage insurance applications under Section 223(f), Section 232 new construction and substantial rehabilitation, and Section 241(a), HUD will require justification/mitigation if the underwritten debt service coverage ratio (“DSCR”) is less than 1.45. Moreover, as was previously discussed with various lenders in June of 2008, for all LEAN mortgage insurance applications involving new construction of Assisted Living units, HUD will require justification/mitigation if the underwritten loan to value is greater than 75%.

The Department would consider, for example, a mitigating factor to be the inclusion of less expensive independent living units in the project or the presence of facility residents that are being provided with state or federal rental assistance subsidies. The Department’s review of mitigating factors will focus on any project specific attributes that result in limiting project market risk or in reducing project financial risk. The Department will be reasonable and flexible in determining where justifiable circumstances or mitigating factors exist.

Additional Guidance on the Use of Project Capitalization Rates:

The Department would like to provide general guidance regarding the usage of capitalization rates for Assisted Living projects. HUD believes that the capitalization rate should be a true reflection of conditions in the marketplace and the specific risks associated with a project. The Department is particularly concerned with the use (in some cases) of an approximate “risk free” capitalization rate for Assisted Living projects. The Department is not mandating a minimum capitalization rate. However, HUD may require justification/mitigation on Assisted Living projects if the capitalization rate used by the appraiser appears not to fully account for specific project and market related risks. This capitalization rate issue should be fully discussed in the Lender Narrative of the LEAN Application.

The Department believes that, in most but not all economic environments, the following debt service constant formula (Debt Service Constant + FHA MIP) multiplied by 1.25 would reflect reasonable guidance for the “minimum” capitalization rate for a proposed project. HUD would expect that the market realities of each project would dictate the capitalization rate to be used, which may be higher than the minimum formula. HUD does not wish to impose requirements for determining the capitalization rate and will defer to the USPAP appraisal standards to provide the definitive guidance on this issue. The Department’s guidance on capitalization rates is not mandatory and the Department understands that this guidance may not be as helpful as a guide when market and economic conditions are either highly optimistic or overly conservative and/or when the interest rate environment reflects unusually low or high project interest rates.

Example for calculating Cap Rate: 7% fixed interest rate plus the MIP of 50 basis points. {.0746+.50bp MIP=.0796*1.25=.0995 or 9.95%}. In this example, the minimum capitalization rate “guidance” is 9.95.

The revised guidance relative to the debt service coverage ratio, loan to value, and capitalization rates for assisted living projects shall apply to any future application for mortgage insurance where an FHA Project Number is issued after February 6, 2009. Alternatively, if the FHA number has not been issued but a project appraisal is underway, FHA will accept the lower DSCR of 1.3 for refinancing and 1.35 for new construction if an appraisal engagement letter was executed prior to February 6, 2009, and if appraisals using the lower DSCRs are finalized and provided to HUD prior to April 6, 2009. On projects that do not meet this revised guidance (where the FHA Project Number was issued on or prior to February 6, 2009) the Lender should provide a notification in the Check Transmittal Letter and Lender Narrative of the mortgage insurance application that provides for the discussion of the appraisal lender modifications.

Please note that the previous guidance on loan to value and debt service coverage on Section 232/223(f)’s for Skilled Nursing and Independent Living Facilities have not been revised.

· Underwriting of “Payee Mix” on LEAN Section 232 Loans

A. If the project being underwritten is an existing project (with no new construction of Skilled Nursing Facility (SNF) beds proposed and/or no substantial rehabilitation of SNF beds whereby the payee mix differs from the project’s payee mix history), the existing MAP Guide language will be applied:

The income estimate should be based on the percentage of Medicaid/Medicare beds shown on the last 3 years of financial statements.

B. If the project being underwritten proposes new construction of SNF beds or substantial rehabilitation of SNF beds whereby a payee mix than differs from the project’s payee mix history, the following three requirements will apply:

1. The percentage of Medicare beds (of the total SNF beds in the project) used in the underwriting must not exceed 10% or the average percentage demonstrated in the market, defined as the average of no less than 5 competing facilities in the primary and secondary market.

2. The percentage of Private Pay beds used in the underwriting must not exceed the average percentage demonstrated in the market, defined as the average of no less than 5 competing facilities in the primary and secondary market.

3. The combined percentage of Medicare and Private Pay beds (of the total SNF beds in the project) underwritten must not exceed 30%.

Waivers to the above will be reviewed on a case by case basis. Waiver requests should be submitted as early in the mortgage insurance application process as possible, however HUD will not officially approve of a waiver prior to the submission of either a Pre-Application or Firm Application for mortgage insurance. We recommend that waiver requests include the following at a minimum:

ü A comprehensive discussion of the operator experience with Medicare patients and what factors will be employed by the operator to insure that the business objectives will be successful.

ü Stress tests that clearly demonstrate what impact reduced payee mix levels/percentages would have on the operator’s capability to meet required project lease and/or mortgage payments.

ü The market analyst must interview all area hospitals or referring entities and discuss any issues that would facilitate or hinder their recommendation to refer Medicare patients from hospitals to nursing homes providing specialized services.

ü The Lender should provide information on any legal issues and any additional information that may be required to justify the waiver.

Apartment Loan

2009-02-06T09:35:00.000-08:00

Kendall Realty Advisors is now offering a full range of apartment loans. New Construction, Refinance, Seven, Ten, Thirty, Thirty Five and Forty Year Loans depending on program.

Rates for FHA 223(f) including MIP under 6.5%.

FHA 221(d) new construction under 7.5%

Ten Year Loans, Seven Year Loans under 6.35%

Fixed Rates, Non-Recourse 30 to 40 year amortization depending on program.

FHA 232 LEAN and Apartment Lending

2009-01-30T13:24:00.001-08:00

FHA Apartment Loan Program going strong rates for GNMA 35 year 223(f) 232(f) GNMA still under 6%.

The FHA 232 LEAN program has closed at least 5 or 6 loans. The process is much faster but the new appraisal rules have reduced the loan amounts from pre-lean levels. The program still offers the best loan to values for owners not looking to cash out, and wanting to lock into long term debt, with 75% to 80% loan to values. The FHA 232 Lean New Construction is preparing for new loan applications under process with the lenders.

The underwriting guidelines are due out in March with the new debt service coverages and loan to value recomendations. Under LEAN the loan will based on the lenders recomendation of loan sizing after reviewing all information the on the transaction, the sponsor and the management.

The loans will be processed faster, and deals that are not over-leveraged, poorly managed, and that have strong sponsors will be funded.

Scott and Chuck Kendall have been financing FHA Healthcare and Multifamily loans since 1985.

Hud Texas News:

2009-01-09T06:20:00.001-08:00

Estate Villas of Krum

On December 19th, the Ft. Worth Program Center closed an insured 221(d)4 new construction mortgage for the Estate Villas of Krum, a 140 unit to-be-built property located in Krum, TX.

Krum Estate Villas, Ltd., the borrower, is a for-profit partnership sponsored by Mr. Byron Ballas. While this was the sponsor’s first FHA-insured project, the development team featured a solid mix of both FHA and non-FHA multifamily experience.

The property is located near two new schools and several new subdivisions. Although growing, the immediate area is still fairly rural and “underserved” in terms of multifamily housing. Estate Villas of Krum will help satisfy some of this area’s demand for affordable apartment housing.

The $12,997,400 mortgage was closed at a 6.76% interest rate.

Financing Nursing Homes And Assisted Living Facilities with the new LEAN Program

2009-01-08T12:54:00.000-08:00

Many owners of nursing homes and assisted living projects have long preferred traditional bank lenders. However, the significant losses from the subprime meltdown—more than $500 Billion—have changed the rules and the ability of traditional lenders to finance loans. Most analysts project additional losses in the near future along with significant losses in automobile loans and credit card loans, which means conditions will become worse before they get better.

These losses force banks and financial institutions to seek capital to supplement their depleted base. Without a sufficient base, banks and financial institutions are unable to make new loans. Despite the infusion of cash from the Treasury, credit has not loosened. The projected size of current and future losses bring into question whether banks and financial institutions have the ability to raise the necessary additional capital and whether or not they will be making many loans in the near future.
The first type of loans that banks will cease making will be loans to nursing home and assisted living providers. Health care is a specialized market, and the number of banks willing or able to make these loans will diminish and the lending terms may become far more onerous. When Letters of Credit come due, banks will not have the ability to renew them.

Therefore, traditional, conventional financing in the near future is all but gone for practical purposes. Fortunately, FHA is rolling out their new LEAN program just as traditional bank and financial company financing is becoming more difficult. FHA recently reengineered its lending program for nursing homes and assisted living facilities by transferring the responsibility to the Office of Insured Health Care Facilities. This transfer has resulted in “THE LEAN PROGRAM,” FHA’s new way of doing business.
This new program addresses the most frequent complaints FHA lenders and facility owners have had with traditional FHA processing: the lengthy processing time, the inconsistent answers, and an inability to complete transactions in a consistently reasonable time frame. The new program promises the ability to close a transaction within thirty days of the day the lender files its application for mortgage insurance.
FHA now not only has a program that is—and always will be—available, offers fantastic terms, but also has the ability to deliver the financing with a rapid turn around, without the previous FHA headaches.

We have over 45 years experience dealing with FHA, and can help you through every step of the way. Each development is unique, of course, and we can help you determine your specific needs and determine the best way to achieve your objectives.

Please call or email us at your earliest convenience.

Very truly yours,

Charles E. Kendall
President
Kendall Realty Advisors