1. Lender Underwriter Training Continental Breakfast Sponsored by: Oppenheimer Multifamily Housing & Healthcare Finance, Inc.

2. Lender Underwriter Training HUD Office of Healthcare Programs Section 232 Program September 13 – 15, 2011

3. Thursday, September 15, 2011 8:00 a.m.

4. Lean Closings

5. Agenda OGC Completeness Check Best Practices – Application Submission Waiver Requests OHP Contract for Underwriting Loan Committee Suggestions for a Smooth Closing Setting the Closing Date Best Practices – Day of Closing

6. OGC Completeness Check New policy issued in latest LEAN e-mail blast When a project is assigned for review, Lenders will now have 5 business days to submit documents identified in Part I of the LEAN legal punchlist Within 4 business days, the assigned HUD attorney will conduct a cursory, objective completeness check to determine that the submission is up-to-date, complete and compliant with current HUD/OHP requirements All incomplete packages will be set aside and remain in the queue until corrected

7. OGC Completeness Check (cont.) Goals: Focus HUD attention, time and resources on projects that are best prepared to close Efficiently allocate resources by avoiding projects that submit incomplete closing packages; are out of compliance with current HUD requirements; or include “dummy” or blank copies of HUD model documents Ensure that documents are in final, negotiated format

8. Best Practices – Application Submission Review and conform submission to Part I of the updated legal punchlist, per LEAN e-mail blast When requested, timely submit a complete set of all Part I documents to the assigned HUD attorney and underwriter For all modifications of HUD/LEAN forms, submit clean and red-lined copies of documents Submit regulatory and HUD-2 waiver requests, as appropriate Request initial/welcome call, as needed, and set expectations for communication flow early

9. Best Practices – Application Submission (cont.) Ensure that the Lender’s Narrative accurately reflects Part I documents Include cover letter (identifying unique issues); Part I Punch List (delineating modifications, as appropriate); and tab all exhibits If the project has a lock-out that will prevent closing before a certain date, or there are state laws/practices that require modification of HUD requirements, disclose as early as possible Engage lender’s and owner’s counsel in the preparation and review of the Part I submission

10. Waiver Requests All modifications of HUD/LEAN forms, or exceptions to HUD requirements, require waiver requests These must be identified and requested by the Lender as part of the Lender’s Narrative and Application Keep in mind that regulatory waivers require approval by the Secretary of HUD and may significantly delay a closing; statutory waivers are never permitted Determinations for all other waiver requests are at the discretion of the OHP UW and WLM

11. OHP Contract for Underwriting Contract issued to Summit Consulting, LLC to help alleviate OHP’s queues (only 223f and 223a7 loans) Contractors will be utilized as both underwriters and closing coordinators Firm and closing review processes will generally remain the same, with oversight of contract by OHP staff (as Government Technical Monitors) Lenders will be notified where to send hard copy firm applications if contract UW is assigned HUD attorneys will continue to review documents at the firm and closing stages

12. Loan Committee Targeted for approx. 2 weeks after OHP UW assignment (4 weeks after HUD attorney assignment) If loan terms deemed acceptable, a firm commitment is issued for the project Currently, after FC issuance, there is a 1-2 week closing queue for assignment to an OHP Closing Coordinator Lender will be expected to submit final form closing documents within 5/15/30 days of Closing Coordinator assignment

13. Suggestions for a Smooth Closing Prior to Firm Commitment Issuance: Resolve major issues, including waiver requests Finalize Part I documents Satisfy all legal/program requests, and clear with appropriate parties Note that closings will not go to Loan Committee until Part I legal review is complete

14. Suggestions for a Smooth Closing Upon Firm Commitment Issuance: Review and comply with all Special Conditions Request all amendments to the FC, including rate-lock amendments, prior to closing submission Use HUD-prescribed forms/language/formatting Submit clean and red-lined versions of all documents as they are revised Promptly respond to HUD comments/requests Use one version of legal description for all documents

15. Best Practices – Title Policy Ensure legal description is consistent with Survey, leases and loan documents Provide copies of all title exception documents Submit all OHP-required endorsements Schedule B: No monetary liens; rights of reverter; standard exceptions (e.g. mechanics’ liens) References to taxes/assessments specify that they are “not yet due or payable” All easements, covenants and encroachments covered by appropriate endorsements

16. Best Practices - Survey Conform to requirements of LEAN Survey Instructions (last revised Feb. 22, 2011) Use 2011 ALTA/ACSM standards and certification Use consistent/accurate legal description and flood hazard designation Dated within 120 days of closing Submit LEAN Owner’s Survey Certification, as appropriate

17. Best Practices – Facility License Submit copies of all applicable licenses, CON, and/or administrative licenses Licenses must be current and in name of Borrower and/or Operator (sometimes Management Agent) If update pending, submit evidence that fees have been paid In certain cases involving transfer of a license upon site acquisition, evidence from licensing body that license will be transferred/issued may be required

18. Best Practices – AR Financing Ensure compliance with Notice H 2008-09 and OHP Closing Guide, when issued Includes 223a7 projects Submit all existing and proposed financing documents, side agreements, and accurate narrative at Firm Application stage Finalized, negotiated documents prior to FC issuance

19. Best Practices – Portfolios and Master Leases Establish early key points of contact and expectations Become familiar with current HUD master lease requirements Begin negotiation process as early as possible Attempt, as practical, to standardize loan documents and requirements for large, cross-regional portfolios Establish Master and Sub-Tenant entities in accordance with HUD timeframes Submit all necessary documents to HUD attorney Finalized, negotiated documents prior to FC issuance

20. Best Practices – Organizational Documents Required documents: Secretary’s Certification Formation and Organization documents Authorizing Resolution Incumbency Certificate Certificate of Good Standing Certificate of Foreign Qualification, as applicable. Incorporate LEAN-required provisions in Borrower organizational documents; limit indemnification provisions

21. Best Practices – Organizational Documents (cont.) Required for the following entities: Borrower Operator All entities listed in the signature blocks of Borrower or Operator Master Tenants, as applicable Management Agents, as applicable Other principals, as requested by HUD

22. Best Practices – Operating Lease Incorporate HUD Lease Addendum Submit the following additional documentation: Estoppel Certificate Subordination/SNDA Agreement Memorandum of Lease Non-disturbance provisions prohibited for IOI Operators Finalized, negotiated documents prior to FC issuance

23. Best Practices – Management Agents Ensure compliance with the LEAN Management Agent Grid Submit for review a copy of the Management Agreement, including all Exhibits/Side Agreements If MA is named on facility license, submit the following additional documents: Organizational Documents Regulatory Agreement Security Agreement/UCC Financing Statements Attorney’s Opinion

24. Best Practices - Miscellaneous Use closing checklists provided by the HUD Closing Coordinator; identify Special Conditions; and tab exhibits For satisfaction of critical repairs, provide clear photos, invoices, a signed certification, and a written explanation if onsite materials were used Request an extension of the FC before it expires Send the OHP Closing Coordinator confirmation that a pre-closing management conference was held

25. Setting the Closing Date Expect to schedule a closing date upon completion of HUD’s review of the closing documents Completion = All documents finalized/revised to the satisfaction of HUD attorney and OHP staff Allow at least 48 hours for HUD endorsement of loan documents; HUD signatory and notary block will be provided by the HUD Closing Coordinator Pre-recording generally allowed Closings-by-mail allowed, but at the sole discretion of the HUD attorney

26. Best Practices - Day of Closing Discuss ahead of time closing expectations and requirements with the HUD attorney Err on side of not closing the last day of the month Pre-record if possible Ensure title representative at closing is familiar with the project’s recording and title requirements Fully disclose wiring or other deadlines If by mail, lender, owner, lender’s counsel, owner’s counsel and title representative should be accessible by phone and e-mail

27. Questions & Answers

28. Thursday September 15, 2011 8:45 a.m.

29. Loan Servicing and Portfolio Management Tim Coon, Branch Chief, Denver David Cole, Senior Account Exec.,Chicago

30. Section 232 Program 2,570 facilities presently insured under this program Facilities are located in 49 states, the District of Columbia and the Virgin Islands. UPB of $17.2 billion in mortgages are insured under this program (as of 6/30/11)

31. The Good News OHP Portfolio Review. Number of Loans by State

32. Asset Management is Servicing an Estimated 16 Billion Dollars in 232 Loans.

33. Current Asset Management Portfolio 2,459 Total Portfolio

34. Increased Staff Capacity and Reorganization 4 Branch Chiefs Manage the Entire 232 Healthcare Portfolio Ed Chlystek Detroit Mary Walsh Fort Worth Tim Coon Denver Catherine Worley Seattle

35. Qualifications of OHP Staff 18 Former Health Care Executives 5 former health care system executives 11 Former Business (Lending, Finance, etc.) Executives 11 Professional Society Fellows 1 Former State Finance Authority Executive 63+ Graduate Degrees, including: 2 PhDs 9 Juris Doctors 52 Masters (17 MBAs) 11 Certified Public Accountants 8 Registered Architects 4 Professional Engineers 2 Registered/Licensed Nurses 6 State-Certified Appraisers 2 Licensed Realtors 40+ Former Office of Multifamily Staff Member

36. Asset Management Structure

37. Asset Management is Focusing on 3 Main Areas: Financial Strength Quality of Care Physical Condition

38. What is Happening in Asset Management Ongoing Risk Analysis: OHP has improved the process to review operator financials for properties that currently have a regulatory requirement to submit. Each Account Executive does a complete analysis of a subset of their portfolio annually (Macro analysis) and shares the results of the risk designation with the lender to see if the lender agrees, disagrees, or would like to discuss the property in further detail. We are working to post a 232 Asset Management directory to the FHA.gov website which will provide a listing of our portfolio with the assigned Account Executive and their contact information.

39. State Survey Inspection Reports are Now Available! The 232 Program has been Very Proactive in Obtaining State Survey Information. HUD has contracted with Team TSI to provide a web site which contains all the survey reports for HUD’s 232 existing nursing home portfolio. This information is crucial in understanding the quality of care provided to the residents. This service is FREE for all lenders to access their existing FHA insured portfolio. To obtain access- simply email surveyresults@hud.gov and request a user name and password.surveyresults@hud.gov

40. Rating Overall Health of a Facility Website http://www.teamtsi.com/hcsportal/

41. Standardization of Policies and Procedures Update The Account Executive Monitors Compliance with Various HUD Requirements: Submission of financials annually through our electronic REAC submission Must be inspected by a third party inspector for acceptable physical condition Cannot take funds from the property except from surplus cash at the end of the year Escrow accounts are funded accordingly and withdrawals must be approved by AE and Workload Manager Compliance with state licensing agency and federal agencies

42. New 232 Operating Handbook Coming soon… Now in Departmental Clearance Review Standardized Protocols Updated Specifically for 232 Standardized Procedures for Management Review. Handbook Sections Specific to Development Handbook Sections Specific to Asset Management

43. 232: Risk Management and Claim Prevention Established early warning systems to identify weak projects Established formal Turnaround Team to intervene with weak projects Now engage in efforts to find buyers/merger partners for weak projects Note sales are now the last option, not the first Engage through sale of assets, transfer of physical assets, bankruptcy, and disposition of assets Focus on maximizing recovery of claim losses

44. 232:Key Asset Management Initiatives Obtaining & Using State Survey Information HUD has contracted with a firm to provide a website which contains all the survey reports for HUD’s 232 existing nursing home portfolio. Includes risk ratings using proprietary (Team TSI) metrics. This service is FREE for all lenders to access their existing FHA insured portfolio. To obtain access- simply email surveyresults@hud.gov and request a user name and password.

45. Asset Management Goal: To create a collaborative relationship in Asset Management where we are supporting Lender and the Owner and the state in their efforts to protect and provide the best care to residents, while minimizing claims to the FHA insurance fund.

46. Expanded Partnership with Departmental Enforcement Center Increase in HUD’s authority to intervene with Operators experiencing Regulatory difficulties Increased Cooperation with DEC in cases of Regulatory violations, HUD Claims Sprinkler Loan (232i) Program (2013 Deadline)

47. How Can We Support Your Staff? 1. The Account Executive can put addition pressure on the owner/operator to make changes (bring in a consultant, sell the property, change the operator) in order to bring the property into compliance before disrupting the residents. 2. We can bring in the DEC who has been instrumental in assisting us with workouts. 3. We can bring in the lender to collaborate with the borrower to solve problems, sometimes in conjunction with an A7 refinance application or other type of request pending.

48. Discussion Questions & Answers Thank you!

49. Thursday September 15, 2011 9:30 a.m.

50. Nursing Home Presentation Departmental Enforcement Center (DEC )

51. 1.HUD Portfolio – Insured $16.5 Billion in Nursing Homes 2.Regulatory Agreements – Used as major tool of Enforcement

52. 3. Major Causes for referral of potentially troubled projects: a. Unauthorized Loans b. Unauthorized Distributions c. Non-payment of Rent d. Physical Issues – REAC under 30 and electives (31-59) e. Residual Receipts – Non Deposit – use Example for NY I.G. f. Non-filers

53. 4. Enforcement Tools :  30 Day Letter  Notice of Violation (NOV)

54. Questions & Answers

55. Lender Underwriter Training Morning Break Sponsored by: EBI Consulting

56. Discussion of Future New Lean/ OHP Policies Michael Vaughn, Director Office of Residential Care Facilities

57. Summation & Wrap Up Final Questions & Answers

58. THANK YOU